In accordance with Article 63 of the Political Constitution and Article 85, paragraph d) of the Labor Code, Costa Rica upholds the principle of "at-will" employment, which applies to labor relations governed by common and private law under the Labor Code. In these cases, there is no obligation to adhere to due process to terminate an employee, as there is no job stability regime in place.
The Second Chamber of the Supreme Court of Justice has referred to this matter on several occasions. In this regard:
“III.- Article 63 of the Political Constitution contemplates so-called relative stability in private employment relationships, where there is no tenure, and the employer’s freedom to dismiss prevails, with the obligation to compensate the worker with the appropriate severance pay, unless the decision is based on serious misconduct attributable to the worker. This provision states: ‘Workers dismissed without just cause shall be entitled to compensation when they are not covered by unemployment insurance.’ In other words, as a general rule, private employment is governed by a regime of at-will dismissal, by which the employer is entitled to unilaterally terminate the employment relationship without the worker having committed an infraction that would make continued employment impossible. In line with this fundamental provision, paragraph d) of Article 85 of the Labor Code considers the employer's own will as a reason to terminate the employment contract without liability to the worker and without extinguishing the worker’s rights to claim and obtain payment of benefits and compensation as provided by law. In such cases, the employer must pay the worker severance compensation, known in Costa Rica as ‘auxilio de cesantía’ (severance aid). (...) The note dated October 13 shows that the termination was based solely on the employer’s will, explicitly stating that the worker was dismissed with employer liability. Therefore, it must be clearly concluded that the dismissal was due to the employer’s own will, a scenario provided for in paragraph d) of Article 85 of the Labor Code as a cause that ends the employment contract without liability to the worker and without prejudice to the worker’s rights to claim and receive the compensation provided by law, i.e., with employer liability. (...)” (Judgment number 304-2006 of the Second Chamber of the Supreme Court of Justice at 9:20 a.m. on May 17, 2006.)
However, this freedom has been "restricted" with the implementation of the labor procedural reform. The legislator provided for the possibility that a worker may claim in court that their dismissal was based on discriminatory reasons, even if it was done with employer liability and under the principle of at-will dismissal. When this occurs, the employer is required to provide objective reasons for the termination, in accordance with Article 478 of the Labor Code.
This does not mean that dismissal with employer liability should be equated with a disciplinary dismissal (without employer liability). It remains a dismissal with employer liability, but the objective reasons for the termination must be determined.
Dismissal “with” and “without” employer liability are two completely different legal scenarios and acts, with different causes, conditions, consequences, and implications, and therefore they cannot be treated the same when evaluating the dismissal letter.
A dismissal without employer liability is a disciplinary dismissal, where the worker is punished with termination due to a serious fault that justifies it. On the other hand, a dismissal with employer liability is not disciplinary. In this case, the worker is not being punished for any fault, as they are entitled to receive the corresponding benefits (notice and severance pay).
Nevertheless, a dismissal with employer liability is still motivated, meaning it arises from the employer's assessment leading to the decision.
The employer is entitled to prepare a dismissal letter with employer liability that describes the reasons for doing so, without this implying that the principles of a dismissal without employer liability, such as proportionality, graduality, legality, or timeliness, must be applied. In this regard, the Second Chamber of the Supreme Court of Justice provides the following of interest:
“(...) If the dismissal of the worker occurs with employer liability, or under the employer's prerogative to dismiss at their own discretion, this Court has repeatedly affirmed that such employer freedom is not unrestricted, and dismissal can only be carried out when there is an objective cause. In such a case, it does not matter if the decision is rational or proportional, as the worker is compensated with the payment of their labor benefits. It is important to note that the employer must expressly state the reasons for terminating the employment relationship, as they cannot allege a different reason in court; this applies when the dismissal is due to a fault attributable to the worker. However, in dismissals with employer liability, when paragraph d) of Article 85 of the Labor Code is invoked: ‘The employer's own will,’ and the worker alleges a different cause, such as discrimination, the objective cause may be analyzed in court. (...)” (Judgment number 168-2024 of the Second Chamber of the Supreme Court of Justice at 3:55 p.m. on January 26, 2024).
To clarify, in a legal process where the worker claims that the reason for their dismissal (with employer liability) is some form of discrimination, what must be evaluated is whether the reasons for the dismissal were objective or discriminatory. It is not about assessing the reasons mentioned in the dismissal letter as if they were faults corresponding to a disciplinary dismissal (without employer liability), as that would correspond to a different legal scenario.
Finally, it is necessary to clarify that even if there are potential grounds for applying a dismissal without employer liability, the employer may still choose to carry out the dismissal with employer liability. In other words, nothing prevents the employer from dismissing the worker with employer liability, even if there are specific grounds for a disciplinary dismissal.
At Bufete Godínez y Asociados, we specialize in counseling and advising employers in labor and employment law. If you need any additional information, do not hesitate to contact us by clicking here.
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