Aug 12, 2025
The Labor Code clearly establishes the fundamental difference between an employment relationship and a civil or professional services contract. Regardless of the name given to the contract, an employment relationship (employment contract) exists if three essential elements are present: (1) the personal provision of a service by the worker, (2) the payment of a salary or remuneration in exchange, and (3) a relationship of permanent subordination or dependence with the employer. The law presumes that an employment contract exists when a person provides a personal service to another person under their direction in exchange for remuneration, unless proven otherwise; therefore, it is the employer who must demonstrate with evidence that there is no employment relationship if they claim that it is an independent service. Since the personal provision of services and remuneration can also be present in contracts for services, case law has reiterated that legal subordination is the distinctive element that separates an employment relationship from a civil service contract. Subordination is manifested in the employer's authority to give orders, direct, and supervise work, along with the employee's corresponding obligation to comply with them. In short, if the professional acts as an employee—keeping a schedule, following direct instructions, integrated into the organization, and financially dependent on an employer—Costa Rican law presumes the existence of an employment contract, regardless of how the parties have titled it.
This legal criterion is based on Article 18 of the Labor Code and protective principles such as the in dubio pro operario (in case of doubt, the interpretation most favorable to the worker prevails) and the aforementioned primacy of reality. In other words, if the conditions of employment are met in practice, the person will be considered a salaried employee, with all their rights, even if a formal professional services contract exists. A service contract does not create subordination: the professional acts autonomously, provides a specific service, generally for a specific period of time or project, and assumes their own labor and tax obligations. On the contrary, an employment contract implies the integration of the employee into the dynamics of the company, with a fixed schedule, compliance with internal regulations, supervision by the employer, and payment of salary with social benefits. Therefore, current legislation prohibits distorting the employment relationship through simulations: "what is definitive will not be the form or name given to the relationship, but the final legal result," the Second Chamber of the Supreme Court has emphatically stated.
Although there is no new formal guideline in 2025, the Ministry of Labor and Social Security (MTSS) maintains a firm and proactive stance against the misuse of service contracts. In practice, this translates into increased oversight and labor inspections to identify hidden relationships. Costa Rica has a robust Labor Inspectorate: the Ministry recently highlighted that the country ranks third in Latin America in the number of labor inspectors per 10,000 workers, reflecting the emphasis on inspection as a tool for protecting rights. In fact, the MTSS reported significant increases in inspection activity in recent years, with special operations in key sectors (for example, 300% more inspections on banana farms, 180% in pineapple plantations, and 86% in docks) and historic levels of coverage: more than 343,000 workers served in 2024, 15% more than in 2023. In the first half of 2025 alone, 60% of the care provided in all of 2024 had already been achieved, evidence of the intensification of inspections.
This reinforced inspection effort seeks to detect violations of labor regulations, including the misclassification of workers as "professional services." The Ministry has reiterated that a written service contract is not enough to avoid labor responsibilities: if the elements of an employment relationship are actually present, inspectors can require the employer to correct the situation. Recent trends show an alignment between the technical criteria of the Ministry of Social Security and judicial jurisprudence.
Likewise, labor authorities have publicly called for compliance with regulations. Inspection agencies often investigate complaints from workers who, after providing services under a professional contract, actually claim to be employees without recognized rights. In these cases, the institutional criterion is clear: if personal services, pay, and subordination are proven, the Labor Inspectorate will presume the existence of an employment contract and may require the employer to add the worker to the payroll, pay back wages, outstanding social security contributions, and impose any administrative sanctions.
Regarding relevant jurisprudence, the Second Chamber of the Supreme Court of Justice (the highest authority on labor matters) has continued to define clear boundaries. In 2023 rulings, it examined cases of professionals hired for services and, applying the essential elements, concluded in one case that there was no employment relationship (due to a lack of real subordination), while in another it determined that a disguised employment relationship did exist. These decisions confirm that each case is analyzed based on the reality of the service: the absence of subordination releases the employer, but if dependency is evident, the contractual disguise falls apart. In short, the current MTSS strategy combines active inspection and support for solid legal criteria to discourage the simulation of employment relationships under the guise of professional services.
Through legal proceedings, there are numerous cases of labor lawsuits where former contractors achieve recognition of their rights. In some cases, once the de facto employment relationship is proven, employers have had to pay years of back benefits (bonus pay, unpaid vacation time, salary differences, etc.), in addition to compensation for unjustified dismissal (notice and severance pay) when applicable. These legal setbacks are often costly. One analysis clearly explains: attempting to save on labor costs through simulation can be "double or triple the cost" for the company when the contractor "takes the blindfold off" and claims their rights. There is not only the risk of having to pay all employee benefits retroactively, but also the interest, legal fees, and fines associated with noncompliance. In short, the practice of disguising employment relationships represents a serious legal risk for companies: they can end up facing lawsuits, administrative sanctions from the Ministry of Social Security (MTSS) and the CCSS (CCSS), and the obligation to recognize all the benefits they attempted to evade. Reputational damage and loss of trust are also intangible consequences to consider.
In short, a professional services contract is viable and legal when we actually hire an external, autonomous, and specialized individual for a specific task or project, and not when the individual will actually occupy a permanent, subordinate position within the company. If the company's needs are more for ongoing work, with a schedule and compliance with orders, the correct approach is to formalize an employment contract (whether for a fixed term, indefinite term, or possibly for a specific duration, as the case may be) and comply with the respective labor obligations. Misusing the professional services contract may seem attractive in the short term, but it entails high legal risks and hidden costs. However, using it appropriately, following recommendations such as those above, protects the company while respecting the rights of the independent worker, achieving a transparent, secure, and legally compliant contractual relationship.
The Ministry of Social Security (MTSS) has made it clear that it will be vigilant regarding contracts for professional services that are, in essence, disguised employment relationships. In the absence of new regulations, the key is to rigorously apply existing rules: anyone who provides a service under the conditions of an employee must be treated as such, with the guarantees of the Labor Code. Costa Rican companies, for their part, would be wise to seek legal advice and adjust their hiring practices to these guidelines. Proper use of service contracts—reserving them for what they truly are—not only prevents sanctions and lawsuits, but also contributes to a fairer and more transparent work environment, where each contractual arrangement is used in good faith for the purposes established by law.
Sources:
Ministry of Labor and Social Security (MTSS); Costa Rican Labor Code; Jurisprudence of the Second Chamber of the Supreme Court; Delfino.cr; University Weekly; Legal blogs and pronouncements.