Business Shutdown And Mass Layoffs

Author:Mr Francisco Salas Chaves
Profession:Littler Mendelson

The operational shutdown of a company entails a number of difficult decisions. However, there is no doubt that laying off personnel is one of the decisions with the strongest impact. In times when Costa Rica is in shock with the news of several companies that have decided to close their Costa Rican operations, it is logical to raise the question of what obligations and rights arise for both parties of the employment relationship.

In case of mass layoffs, employers should first prepare an appropriate communication plan to inform employees about all the operational and legal details of this decision that may directly affect employees and their families. In this connection, it is important to be clear about the workforce that will be affected and the dates when the operational shutdown will finally occur, since employees are entitled to be aware of said information in order to start looking for new employment options.

From a strict legal standpoint, the company will not be required to follow any kind of special procedure if the shutdown decision affects the entire workforce, nor is the company required to obtain any authorization or permit from a governmental body prior to the layoff (as it is required in other countries). In Costa Rica, there is no difference between dismissing five workers and laying off the entire roster of employees.

Pursuant to the Article 28 of Costa Rica's Labor Code, employers should give prior notice to employees of the impending layoff. While the law establishes different notice periods (depending on the length of the employee's employment), all employees are entitled to know the exact termination date in advance. For example, in the case of an employee who has worked for the company for one year, the employee will be entitled to receive the notice at least one month in advance of the termination date or receive the corresponding payment in lieu of such advance notice. As long as the employer complies with the applicable notice period, the employer is not required to provide a longer period than what is set forth under the law.

Furthermore, employers are required to deliver in full the severance pay, which is calculated based on the employee's length of service. Companies that have a Solidarity Association may use the Association's existing severance fund to pay for all or part of the employees' severance. Employees are also entitled to withdraw their savings from the Association, but may be required to...

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