Sources of rules and practice


Provide an overview of the primary sources of law, regulation and practice that govern or affect executive compensation arrangements or employee benefits.

The legal framework by which compensation agreements for executives and benefits for employees are regulated comprises the following standards:

  • the Political Constitution of 7 November 1949 (CPol);
  • the Labour Code, Law No. 2 of 15 September 1943 (CT);
  • Law No. 17 of 22 October 1943, Constitutive of the Costa Rican Social Security Fund (LCS);
  • Law No. 832 of 4 November 1949, on Minimum Wages and the creation of the National Salary Council (LSM);
  • Law No. 2412 of 23 October 1959, of Aguinaldo to servers of the Private Enterprise (LAG);
  • Law No. 7092 of 21 April 1988, on Income Tax (LIR);
  • Law No. 7727 of 9 December 1997, on Alternative Resolution of Conflicts and Promotion of Social Peace (RAC);
  • Law No. 7983 of 16 February 2000, on Worker Protection (LPT);
  • Law No. 8682 of 12 November, 2008, on Promotion of the School Salary in the Private Sector (LSE);
  • the Regulation of the Health Insurance of the Costa Rican Social Security Fund (RSS), No. 7082 of 3 December 1996; and
  • the Regulation of Disability, Old Age and Death Insurance of the Costa Rican Social Security Fund (RIVM), No. 6898 of 7 February 1995.

What are the primary government agencies or other entities responsible for enforcing these rules?

The main agencies or governmental entities responsible for enforcing the legal regulations relating to compensation for executives and employee benefits are the following:

  • the Courts of Justice (Constitutional Chamber and Second Chamber of the Supreme Court of Justice, Court of Appeals and Labour Courts or Contraventional Courts); and
  • the State Administrative Inspection Bodies (National Inspection Directorate of the Ministry of Labour and Social Security, Inspection Directorate of the Costa Rican Social Security Fund and General Directorate of Direct Taxation of the Ministry of Finance).


Governance requirements and shareholder approval

Are any types of compensation or benefits generally subject to specific corporate governance requirements or approval by shareholders or government agencies? What is the general process for obtaining approval?

There are no legal norms that generally determine that for the granting of compensations or benefits in the private sector, a certain procedure must be followed. The set of remunerations for senior management is usually a company decision and due to this condition, it is usual that it requires the approval of its board of directors or shareholders.


Under what circumstances does the establishment or change of an executive compensation or benefit arrangement generally require consultation with a union, works council or similar body?

There are no legal norms that generally determine that for the establishment or change of a compensation or benefit agreement a consultation with a union, works council or similar body is required.

This requirement would only be necessary in the case of compensations or benefits granted through a collective bargaining agreement signed with a union or in a direct arrangement signed with a standing committee of workers. These agreements do not regulate the remuneration of senior management.

Prohibited arrangements

Are any types of compensation or benefit arrangements prohibited either generally or with respect to senior management?

There are no legal rules that prohibit granting compensation or agreeing benefits to senior management.

Rules for non-executives

What rules apply to compensation and benefits of non-executive directors?

Any director must receive a salary higher than the legal minimum wage, which is set annually. In addition, the legal obligations must be deducted from salary, especially those relating to:

  • income tax - called ‘salary tax’ - that for the fiscal period (running from 1 October to 30 September) consists of a minimum exempt amount, a part that is updated every year to which 10 per cent is applied on the excess of the exempt sum, and a final part, which is the remaining amount (if relevant), on which 15 per cent is applied; and
  • employee charges in favour of different institutions of social security that add 10.34 per cent of the monthly salary and that from 2020 will be 10.5 per cent.


Mandatory disclosure of executive compensation

Must any aspects of an executive’s compensation be publicly disclosed or disclosed to the government? How?

The compensation received by the executive must be communicated every month, in the forms that are sent electronically to the Costa Rican Social Security Fund. It must also be included in similar forms for subscription to the work risk policy that are sent to the National Insurance Institute.

Employment agreements

Common provisions

Are employment agreements required or prevalent? If so, what provisions are common? Are any terms prohibited or unenforceable?

The Labour Code only contains generic regulations on the obligation that a salary must be agreed between the parties as compensation for services rendered, and that this salary cannot be lower than the legal minimum wage that is fixed every year (articles 178 and 191 of the Labour Code). Then, it establishes that the salary can be agreed by:

  • unit of time (month, fortnight, week, day or hour);
  • piece or by task;
  • in money and in kind; and
  • for participation in the profits, sales or collections made by the employer (article 164 of the Labour Code).

According to these basic rules, the parties may include any other agreement in the contract and subsequently sign an addendum to the contract to modify the conditions initially agreed in the employment contract.

The agreements must be documented, given that in the case of a judicial conflict, the employer must demonstrate:

  • ‘the full payment of the salary obligations, including their amounts and components, when required;
  • the shares in profits, sales or collections; incentives; and
  • other bonuses, conventionally or legally established’ (article 478 of the Labour Code).

The non-competition clauses are valid, provided that reasonable compensation is established for this.

If benefits not required by law are included, the conditions under which they may be modified or eliminated in the future must be indicated. In the case of commission plans for non-senior management personnel, changes that imply a salary reduction are not allowed, unless compensation is agreed upon or the contract is terminated with employer’s liability.

Incentive compensation

Typical structures

What are the prevalent types and structures of incentive compensation? Do they vary by level or type of organisation?

The organisations themselves are free to regulate the type of incentive, whether it is denominated as incentive, bonus, etc. Likewise, they also enjoy the freedom to establish the structure of these incentives: they can choose to give greater or lesser importance to the contribution, productivity or results of the worker or their work team, as well as taking into account the financial results of the division or department in which the worker is employed, obtained by the company at national level, or even obtained at a regional or global level, according to the size of the organisation.


Are there limits generally on the amount or structure of incentive compensation? Are there limits that adversely affect the tax treatment of the compensation relative to the employer or the executive?

There are no legal limits on the amount or structure of incentive compensation. From the fiscal point of view, the ‘wage tax’ is applied progressively and although the percentages have not changed, the amounts on which it is applied are updated every year.

Until September 2019, the current exempt amount is 817,000 Costa Rican colóns monthly, over the excess of that amount and up to 1.226 million Costa Rican colóns monthly, the tax is 10 per cent and over the excess of that amount is 15 per cent. These amounts will be modified again from 1 October 2019 and will be maintained until 31 December 2020, when they will be fixed towards the future every 1 January of each year.

As indicated, the tax is calculated on the ‘gross salary’. Salary includes the sum in cash obtained by the ordinary working day, the extraordinary day and the work done on a holiday or a weekly rest day, plus the amount received for incentives or bonuses. Likewise, there must be included the value of the benefits received in kind, which according to the law are considered salary.

Once the income tax or salary tax has been calculated, the ‘family credits’ (article 34 of the Law on Income Tax) can be deducted from the amount to be paid. Only one of the spouses may benefit from these. The following monthly amounts are:

  • for each child: 1,530 Costa Rican colóns; and
  • for the spouse: 2,290 Costa Rican colóns.

Is deferral and vesting of incentive awards permissible? Are there limits on the length or type of vesting and deferral provisions?

The law does not establish a limit to the rules that organisations can set about granting incentives and the way in which these incentives can be deferred over time.

In this sense, an organisation may arrange for the incentive to be delivered on a monthly, quarterly, semi-annual or annual basis. The most common incentives in the market are those that have an annual periodicity.

Also, it is common in the market that once the requirements for obtaining the incentive have been met, payment is usually not made immediately but at a later point in time, which can even exceed one month.

Are there limitations on the individuals or groups eligible to receive the compensation? Are there aspects of the arrangement that can only be extended to certain groups of employees?

There is no limitation on the company granting certain incentives or compensation only to a category of workers, provided there is an objective reason for that differentiation. It is also possible that a part of the compensation has a deferred payment term, even after the termination of the employment contract, or that it is deposited in a savings fund or for any other purpose agreed by both parties.

Recurrent discretionary incentives

Can it be held that recurrent discretionary incentive compensation has become a mandatory contractual entitlement? Is this rebuttable?

Discretionary incentives only become obligatory rights - referred to as ‘acquired rights’ by the courts - when they have been offered to the workers without conditions. If the incentives offered are conditioned to eventual modification or elimination based on objective and reasonable criteria, which must be supported by different proof (economic, financial, productive, market, etc), the right to receive the incentives cannot be demanded as a contractual obligation and the worker’s claim can be refuted.

Effect on other employees

Does the type or amount of incentive compensation awarded to an executive potentially affect the compensation that must be awarded to other executives or employees?

The compensation of an executive may be conditioned or indexed to the compensation of another executive or employee, provided that this condition is expressly indicated and accepted on the date on which he or she is hired and exceeds the legal minimum wage. In these cases, it is usual that compensation may have, as reference, market studies in similar positions and in companies of the same sector. In others, the reference is the amount received by staff of the same company, at the same level or in higher positions.

Mandatory payment

Is it permissible to require repayment of incentive compensation under certain circumstances? Are there circumstances under which such repayment is mandatory?

The benefit received may be subject to repayment for any circumstance that demonstrates an ‘undue’ or ‘unjustified’ payment. These circumstances may originate in the review of compliance with the requirements established to obtain the benefit.

When the reason for making an error does not in turn constitute a reason for immediate termination of the employment contract and for the return of the money received, the legal rules provide for ‘excess’ payments that can be followed.

The Labour Code provides that ‘the debts’ that the worker contracts with the organisation for ‘payments made in excess’ may be reimbursed by the employer, during the term of the contract, ‘in a minimum of four periods of payment and will not accrue interest’, and that in the event that the debt subsists at the end of the contract, at that time ‘the final settlement may be made as appropriate’. The liquidation in these cases will imply that of the wages owed to the worker at the end of the contract, and the outstanding balance owed can be deducted (article 173 of the Labour Code).

The decision to deduct the sums paid in excess from the salary is a unilateral one by the employer, who must inform the worker of the amount paid in excess, the reason for this, the number of payment periods in which the compensation will be applied and the period in which it will happen.

By agreement of the parties, fewer payment periods may be established or even the application of non-proportional amounts in each of them, provided that it is demonstrated that it is for the convenience of the worker.

When the reason for the mistake incurred is in itself a reason for immediate termination of the employment contract, for having incurred the executive in a serious fault that justifies his dismissal, the collection of the existing debt will force the organisation to resort to the judicial office, through an ordinary civil claim for reparation of the damage caused.

Can an arrangement provide that payment is conditioned on continuing employment until the payment date? Are there exceptions?

Two topics have been subject to judicial discussion in reference to what is indicated here.

First, in some cases, the incentives include additional requirements for the final payment of the benefit, even though the productivity or profit goals or objectives have been met. For example, a minimum length of time spent by the worker in the employment is required once those goals or objectives have been met. It is a form of staff retention. The judgments of first and second instance courts, not of the Supreme Court of Justice, have been inclined to consider that once the computation period of productivity or profit goals or objectives has ended, the right to benefit is acquired, even though the person may leave the job later.

Second, workers who terminate their employment contract before the end of the period for calculating productivity or profit goals or objectives have claimed proportional payment of the benefit, despite the fact that requirements established by the organisation are measured for a longer time, usually annually. Some judgments of the Second Chamber of the Court have admitted the right to a payment proportional to the time worked within the computation period, provided that the worker can demonstrate partial compliance with the requirements, which obviously will not always be possible, especially because the partial fulfilment of a goal does not mean that at the end of the period the beneficiary will be entitled to the benefit given that the ultimate requirement will not have been met.

Equity-based compensation

Typical forms

What are the prevalent forms of equity compensation awards in your jurisdiction? What is a typical vesting period? Must the arrangements be offered to a broad group of employees, or can the employer select the participants?

The use of equity compensations is linked to multinational companies whose shares are quoted on international stock exchanges, given that the purchase and sale of shares in the Costa Rica stock exchange is very limited. The most common form of compensation among these companies is the stock option plan, related to variables such as organisational profits and performance evaluation. The number of shares granted will depend on the position of the person within the organisation - his or her seniority, etc. The consolidation periods are variable, depending on the importance of compensation as a tool for staff retention.

Must equity-based compensation be granted by the company’s board of directors (or its committee) or can the authority be delegated to officers or employees of the company? Are there limitations or requirements that apply to delegation?

The decision to grant compensation can be delegated, partially or totally, by the board of directors to any internal body of the company of lower hierarchy. There is no law regulating that delegation.

Tax treatment

Are there forms of equity compensation that are tax-advantageous or disadvantageous to employees or employers?

In accordance with the criterion of the General Taxation Office of the Ministry of Finance (Resolution No. DGT-CI-06-11 of 4 March 2011) with respect to the stock option plan, the difference between the price at market value and the price at which the workers acquire the shares constitutes a profit on which income tax must be paid. There are no equity compensations modalities that have a tax treatment different from the one already explained.


Does equity-based compensation require registration or notice? Are exemptions, or simplified or expedited procedures available?

There are no exemptions, simplified or accelerated procedures available for equity compensations, notably the stock option plan.

Withholding tax

Are there tax withholding requirements for equity-based awards?

The only requirement for application of tax payments to equity compensations, especially the stock option plan, is the existence of a difference between the price at market value and the price at which the worker acquires the shares and that it constitutes a gain for the latter. The employer is required to apply the tax, as withholding agent (article 23 of the Law on Income Tax).

Inter-company chargeback

Are inter-company chargeback agreements between a non-local parent company and local affiliate common? What issues arise?

Inter-company chargeback agreements between a non-local parent company and a local affiliate are common. The Income Tax Law does not establish tax liens for these transfers of capital when the transfer occurs between a foreign parent company and a local subsidiary; nor for agreements related to the stock option plan.

Stock purchase plans

Are employee stock purchase plans prevalent or available? If so, are there any frequently encountered issues with such arrangements?

Stock option plans are used as part of the benefits granted to employees, especially in listed companies, which form the large majority of those participating in the market.

The problems that these plans have presented are related to their consideration, or not, as salary and its impact, especially in the payment of employment benefits at the end of the contract or other rights that are calculated during the term of the contract, on the salaries received, as happens with holidays or the Christmas bonus.

This benefit has been analysed in Resolution No. 94-2008, of 13 February 2008 in the Second Chamber of the Supreme Court of Justice, which considered that they lack a salary nature, given that:

(a) the reward is potential, possible and unsafe, (b) it can generate losses or profits, (c) there is no regularity, (d) it is variable according to the supply and demand of the market, (e) the gain is variable, (f) it is not necessarily of a food nature, (g) it is convertible, and (h) the profit depends on speculation.

Employee benefits

Mandatory and voluntary employee benefits

Are there any mandatory benefits? Are there limits on changing or discontinuing voluntary benefits that have been provided?

The bonus is the equivalent of one-twelfth of the ordinary and extraordinary salaries accrued during the 12 months prior to 1 December of the year in which it corresponds to pay (articles 1 and 2 of the Law of Aguinaldo (Christmas bonus) to servers of the Private Enterprise) and must be delivered within the first 20 days of the month of December (article 4 of the Law of Aguinaldo (Christmas bonus) to servers of the Private Enterprise).

Through the sickness and maternity insurance that is administered by the RSS, workers are protected against any illness or accident suffered that has not occurred as a consequence or on the occasion of subordinated and remunerated work. Apart from medical benefits, the worker is entitled to an economic subsidy paid by the RSS from the fourth day of disability (article 35 of the Regulation of the Health Insurance of the Costa Rican Social Security Fund), which is 60 per cent of salary, and in the first three days the subsidy payment is payable to the employer, at 50 per cent of salary (subsection (a), article 79 of the Labour Code).

Occupational risk insurance, which is administered by the National Insurance Institute, protects the worker against ‘work risks’ (article 195 of the Labour Code) and grants him or her, among others, medical-surgical, hospital, pharmaceutical and rehabilitation assistance, and cash benefits (article 218 of the Labour Code).

The worker acquires the right to a paid rest period called ‘prenatal’ or ‘antepartum’, of one month. In the case of ‘postnatal’ or ‘postpartum’ rest, the period of suspension of the contract is three months (article 95 of the Labour Code). In cases of multiple births, maternity leave will be extended for an additional month for each additional life insurance product (article 4 of the RSS). If the worker adopts a minor, he or she will also be entitled to an adaptation period of three months from the date on which he or she takes on the child (article 95 of the Labour Code), and ‘will enjoy the same rights and the same license’ provided for maternity (article 40 of the Regulation of the Health Insurance of the Costa Rican Social Security Fund). During maternity leave, the remuneration received is 100 per cent of the salary reported to the RSS in the three months prior to the leave or delivery (article 43 of the Regulation of the Health Insurance of the Costa Rican Social Security Fund) and will be paid in equal parts between the RSS and the employer.

Every worker is entitled to two weeks of paid annual vacation for every 50 weeks of continuous work (article 153 of the Labour Code).

Typical employee benefits and incentives

What types of employee benefits are prevalent for executives? Are there tax or other financial incentives or disincentives for such employee benefit arrangements?

There are no special incentives for executive staff only. The law does stipulate that certain amounts of savings made by the worker may be exempted from the payment of salary and social security taxes, as in the following cases:

  • savings in a voluntary complementary pension plan: savings can be up to 10 per cent of salary. The incentives must not be returned provided that the worker makes 66 monthly contributions to the plan and has a minimum age of 57 years on the date of retirement (article 71 of the Law on Worker Protection); and
  • savings for school salary: savings can be between 4.16 per cent and 8.33 per cent of salary (article 2 of the Law on Promotion of the School Salary in the Private Sector).

Termination of employment

Rules for termination

Are there prohibitions on terminating executives? Are there required notice periods? May executives be dismissed without cause?

There are no limitations for executives’ dismissal, except in the case of those who have by law a special jurisdiction for stability protection, as happens, among others, with workers in a state of pregnancy, breastfeeding or who have previously reported a case of harassment. In these cases, the dismissal may only be made if a serious offence is previously demonstrated and the termination is authorised by the General Directorate of Labour Inspection.

Out of the assumption of workers with special jurisdiction, executives can be dismissed without just cause - at ‘the employer’s own will’ (subsection (d), article 85 of the Labour Code), with only payment of notice payments (article 28 of the Labour Code) and unemployment assistance (article 29 of the Labour Code).

Mandatory severance pay

Are there statutory or mandatory minimum severance requirements? Are there any other mandatory, post-employment benefits?

The law provides for the payment of compensation for dismissal with responsibility of the company, as compensation for the damage caused by a dismissal without cause.

The indemnities provided (articles 28 and 29 of the Labour Code), although they are minimal, in practice they are not usually extended, other than in exceptional cases.

In the case of senior executives, the custom is to replace the dismissal with a mutual agreement to terminate the employment contract (subsection (c), article 86 of the Labour Code), detailing the amount to be paid, which is usually the same as that which the organisation should assume in case of dismissal without just cause.

Also, in relation to the position in the hierarchy of the executive, an additional indemnity consisting of a lump sum - sometimes set at a multiple of monthly salary, is usually included voluntarily as a reward for seniority or fidelity.

The severance payments and unemployment benefits are calculated based on the average of the total remunerations of a salary nature received in the last six months of work prior to dismissal (article 30 of the Labour Code).

There are no additional benefits that must necessarily be paid after dismissal, except for salaries owed by commissions.

Typical severance pay

What executive severance payment level is typical?

The indemnities that are set for executives, in addition to those legally established, are usually paid based on the monthly salary or the remuneration received for other benefits. As it is not legally regulated and is a voluntary act of the organisation, the same employer may agree to be set in a lump sum or in proportion to the monthly base compensation and bonus. In the same way, it can be established that the payment will be paid in a prorated manner within the agreed period.

Reasons for dismissal

Are there limits on dismissal for ‘cause’? Are there any statutory limits on ‘constructive dismissal’ or ‘good reason’? How are ‘cause’ or ‘constructive dismissal’ defined? Are there legal or customary rules relating to effecting a termination for ‘cause’ or ‘constructive dismissal’?

The Labour Code regulates cases of dismissal for just cause (articles 81 and 369 of the Labour Code). However, it includes within the list of causes any other ‘serious fault’ in the context of the obligations of the worker and arising from the employment contract. This extends the variety of behaviours that can support a dismissal, including those that are a violation of the principle of good faith (article 19 of the Labour Code) such as unfair competition and non-disclosure of conflicts of interest, disclosure of confidential information, etc.

The Labour Code also regulates cases in which the worker can resign from employment, with responsibility on the employer - what the courts call ‘indirect dismissal’ (article 83 of the Labour Code). In a similar sense, the list included by the legislator also constitutes an open clause, when it includes as a reason for resignation the incurring by the employer of ‘any other serious fault’ relating to the obligations of the work contract, including those derived from the principle of good faith (article 19 of the Labour Code).

The law provides, in case of non-compliance of the employer, that the worker suspends the provision of his or her work with payment of salary (article 84 of the Labour Code) - which does not usually happen. On the contrary, it is more frequently the case that rather than following the requirements demanded by the jurisprudence of the courts of justice, the worker sends a written complaint to the employer, to give them a last chance to correct their behaviour within a reasonable time. Failure to comply with this requirement transforms the worker’s decision to resign into an act of bad faith and the resignation is considered unjustified.

Gardening leave

Are ‘gardening leave’ provisions typically used in employment terminations? Do they have any special effect on benefits?

If the worker is dismissed without a just cause, he or she must be granted a period of notice before the termination of the employment contract is executed (article 28 of the Labour Code). However, during the enjoyment of the notice period, the worker can be separated from their job, indicating that at this same time they must enjoy their vacations. The employer can also include the amount equivalent to the days of notice in the payment of the final settlement of the worker and ask him or her to withdraw immediately from the job.

If the worker resigns, although he or she must work the notice, the organisation may request the individual to leave their job and terminate the contract immediately, without there being an obligation to include the amount equivalent to the days of notice in the payment of the final settlement.

The period of notice is part of seniority and the calculation of employment benefits must consider the income received by the worker in that period of time.

Waiver of claims

Is a general waiver or release of claims on termination of an executive’s employment normally permitted? Are there any restrictions or requirements for the waiver or release to be enforceable?

Labour rights and guarantees are inalienable (article 74 of the Political Constitution and article 11 of the Labour Code). The settlements celebrated within companies for which the workers waive future judicial or administrative claims, receiving with satisfaction the sum that is delivered at the end of the contract, are absolutely null and their only probative value is in relation to the amount of money received.

Only the conciliatory agreements concluded below give a definitive solution to possible and future conflicts (article 459 of the Labour Code):

  • an RAC;
  • the Labour Relations Department of the Ministry of Labour and Social Security; or
  • before the labour judge in a prejudicial hearing requested by any of the parties.

In the same way, an award is issued to the same value in accordance with the arbitration agreement signed by both parties in an RAC Centre or in the Ministry of Labour and Social Security (article 602 of the Labour Code).

However, in order to enter into conciliation agreements with an RAC Centre, the worker must be accompanied by a lawyer or a union representative (article 456 of the Labour Code).

On the other hand, conciliatory agreements cannot be concluded to the detriment of the ‘inalienable, unassailable and indisputable’ rights of workers (article 457 of the Labour Code). Although there have been no cases with the Labour Procedural Reform, it is possible that the courts of justice in cases of claims of workers on agreements concerning inalienable rights review the legality of the same regarding these benefits. In the event that the worker demonstrates that a sum greater than the one initially agreed is owed, they accept the claim in that amount. According to the interpretation of the courts of justice the following are inalienable rights. Christmas bonuses, holiday and any sum that has the same nature as the salary (bonuses, incentives and overtime, etc.).

Post-employment restrictive covenants

Typical covenants

What post-employment restrictive covenants are prevalent? What are the typical restricted periods?

There is no legal regulation of these pacts. Post-contractual non-competition clauses have been declared legal by the courts of justice provided the employer reasonably compensates the worker. In the absence of a remuneration agreed by the company and the executive, the courts set the compensation that has to be paid to the worker at 50 per cent of his or her salary during the period in which he or she was required not to compete.

Clauses of non-solicitation of customers and non-solicitation of employees are usual regarding in senior management staff, usually limited to a reasonable time according to the needs of the company, especially according to the position occupied by the worker and the nature of the market, without usually requiring compensation for such a limitation - although sometimes they can be agreed in combination with the non-competition clause. The validity of these clauses has not been judicially reviewed.


Are there limits on, or requirements for, post-employment restrictive covenants to be enforceable? Will a court typically modify a covenant to make it enforceable?

The only limits that have been applied in the revision of these agreements are those derived from the contractual good faith and equity principles, and the limits were made only to establish a reasonable compensation proportional to the prohibition imposed on the worker, without the mediation of an agreement.

It is possible that in the future issues related to the term or geographic or similar scope will be reviewed, in which case the company should adopt the precaution of including them in an agreement and in terms that pass the reasonableness and proportionality test.

Remedies for breach

What remedies can the employer seek for breach of post-employment restrictive covenants?

Non-compete post-contract agreements in the event of default authorise the judicial collection before the civil courts of damages caused to the company, in addition to the refund of the money already paid in advanced along with the interest and indexing rates. In some cases, in anticipation of this, the compensation agreed with the worker can be paid in tracts until the negotiated term is met.

Pension and other retirement benefits

Required retirement benefits and incentives

Are there any required pension or other retirement benefits? Are there limits on discontinuing or modifying voluntary benefits that have been provided?

Employers, workers and the state between them finance the main retirement scheme administered by the RSS. In parallel, since 2000, a compulsory complementary pension regime has been created, maintained by public and private pension operators freely chosen by the worker, in which individual accounts were created as a complement to the main pension. The benefits of the supplementary pension can only be received once the benefit of the main pension is obtained or once it is determined that he or she is not entitled to it.

Typical retirement benefits and incentives

What types of pension or other retirement benefits are prevalent for executives? Are there tax or other financial incentives or disincentives for such employee benefit arrangements?

The main retirement scheme covers the contingencies of disability, old age and death. The retirement benefit can be enjoyed by close relatives of the beneficiary in conditions of widowhood or orphanhood.

An old-age pensioner can be rehired by the same company that he or she had been working for before retiring. In these cases, the amount of social charges that must be paid for social security is reduced, because it is not necessary to pay disability, old-age and death insurance; it would only be necessary to cancel the health and maternity insurance.

The retiree may also return to work in special cases duly authorised by the RSS, but the payment of their social charges does not suffer reduction and once they reach the quotas and the required age, they can benefit from the pension.

There is no tax benefit for retired people.

Supplemental retirement benefits

May executives receive supplemental retirement benefits?

Few companies, especially multinationals, have voluntarily adopted additional retirement plans or funds, which are normally bipartite and, in a few cases, financed exclusively by the company.

In some cases, the contribution of employers to the retirement fund has changed or been eliminated; the courts of justice have decided that this is lawful when it has been stated in the rules with which the benefit was created.

The actions adopted regarding complementary retirement benefits cannot be considered as discriminatory if they have a reasonable justification and are proportionate to the purpose sought.


Directors and officers

May an executive be indemnified or insured for claims related to actions taken as an executive, officer or director?

Insurance companies offer loyalty insurance for losses arising from dishonest or fraudulent acts committed by employees, including improper handling of funds. There is also civil liability insurance for damages caused to third parties during the exercise of their professional activity.

Change in control

Transfer of benefits

Under what circumstances will an asset sale in your jurisdiction result in an automatic transfer of benefit obligations to the acquirer?

The Labour Code regulates employer substitution by sale of assets, which will not affect existing labour contracts to the detriment of the worker. In this case, the replaced employer will be jointly and severally liable with the new one for obligations derived from the contracts or from the law, including debts of social security before the RSS entered into before the date of the substitution for up to six months. Once this period has expired, the liability will remain solely with the new employer (article 37 of the Labour Code).

Executive retention

Is it customary to provide for executive retention or related arrangements in connection with a change in control?

In some cases, especially when the continuity or success of the company’s activity depends on the retention of personnel in strategic positions, additional agreements can be signed with the executive staff to be retained, aimed at offering incentives to remain in the position. Additionally, complementary non-competition clauses are signed in the event that the executive’s exit occurs before a certain period of time and after the change of control of the company.

Expedited vesting of compensation

Are there limits or prohibitions on the acceleration of vesting or exercisability of compensation in a change in control? Are there restrictions on ‘cashing-out’ equity awards?

There are no limits or prohibitions on the acceleration of vesting or exercisability of compensation in a change in control. There are also no restrictions on ‘cashing-out’ equity awards. The most important thing is that these situations are already included and described in the policy that regulates the stock option plan that was provided to the worker.

Are there adverse tax consequences for the employer or the executive relating to benefits or payments provided pursuant to a change in control?

The benefits or payments provided to executives by virtue of a change of control are not legally regulated and their tax treatment is the same as that to which those payments are subject in normal situations of termination of the employment contract.

Multi-jurisdictional matters

Exchange controls

Do foreign exchange controls rules apply to the remittance of funds, or the transfer of employer equity or equity-based awards to executives?

Yes. Foreign exchange controls rules regarding the remittance of funds, or the transfer of employer equity or equity-based awards, are fully applicable to executives.

Local language requirement

Must employment agreements, employee compensation or benefit plans, or award agreements be translated into the local language?

Every company with operations in Costa Rica, whatever its nature, must provide internal copies of the rule stating that the orders, instructions and provisions addressed to the workers in the business must be given in Spanish (article 7 of the Labour Code). However, if the worker speaks a different language, compensation plans or benefits may also be communicated in that language.

In any case, if these documents must be part of the documentary evidence submitted in a judicial process. They must, if they are in another language, be duly translated into Spanish (article 464 of the Labour Code).

Net salary arrangements

Are there prohibitions on tax gross-up, tax indemnity or tax equalisation payments?

There are no legal rules that prohibit tax gross-up, tax indemnity or tax equalisation payments. These provisions are usual and are negotiated directly between the organisation and the executive, at the moment of their hiring or their transfer to the country.

Choice of law

Are choice-of-law provisions in executive employment contracts generally respected?

The Labour Code is a rule of public order and all companies established in the country are subject to its provisions, as well as all inhabitants without distinction of nationality (article 14 of the Labour Code). Therefore, a resignation that the executive makes under Costa Rican law, to his or her detriment, is null.

In matters of international competition, where the intervention of the Costa Rican courts is requested they will always apply the national legislation to the entire labour relationship, in a manner that is most favourable to the worker (article 434 of the Labour Code).

Update and trends

Key developments of the past year

What were the key cases, decisions, judgments and policy and legislative developments of the past year?

Key developments of the past year47 What were the key cases, decisions, judgments and policy and legislative developments of the past year?

In the 2018 to 2019 macroeconomic programme prepared by the Central Bank of Costa Rica, it was projected that the central government’s financial deficit would be equivalent to 7.2 per cent of gross domestic product in 2018 and 7.5 per cent in 2019, thus becoming the main risk macroeconomic of the country.

In this context, the main laws approved during 2018 shall be analysed, especially the Law on Strengthening of Public Finance, No. 9635 of 3 December 2018, which contains measures to restrict spending, focused on containing the increase in salary benefits of state employees.

A series of reforms in the field of the right to strike are underway to prohibit strikes in certain essential public services and to allow them and others under certain conditions, in addition to limiting the payment of wages to workers during their development.

Finally, the Telecommuting Law was approved in August 2019, which is pending publication.