This country-specific Q&A provides an overview of Employment and Labour laws and regulations applicable in Chile.
Does an employer need a reason to lawfully terminate an employment relationship? If so, state what reasons are lawful in your jurisdiction?
Yes, an employment relationship may only be lawfully terminated for the causes listed in the Chilean Labour Code. These grounds may be classified depending on whether they provide or not a right to severance pay.
Causes for termination without right to severance pay:
Termination by the employee: These are termination grounds originated in a unilateral decision or circumstance of the employee. (i) Mutual agreement of the parties: (ii) Resignation of the employee; (iii) Death of the employee; (iv) Expiration of the term of a fixed term employment relationship; (v) Completion of the specific work or service for which the worker was hired; and, (vi) act of god or force majeure.
Termination grounds caused by employee’s misconduct: (i) Lack of probity in the performance of duties; sexual harassment; physical aggression; harassment, infliction of injuries; serious immoral behaviour affecting the employee; (ii) By carrying out activities in the same line of business as the employer; (iii) Unjustified absence during: (a) two consecutive days or two Mondays in a month or a total of three days in a month; and, (b) where the worker in question is in charge of an activity or machine which abandonment or stoppage implies a serious disruption to the employer; (iv) The abandonment of work by the employee: (a) unjustified departure from the workplace during working hours; and, (b) refusal to perform the services agreed in the employment agreement; (v) Conduct affecting the safety or functioning of the business or the safe performance of work by other employees or the health of other employees; (vi) Wilful act of damage against the facilities, machinery, tools, products or goods of the employer; (vii) A serious breach of the worker’s obligations in the employment relationship.
Causes for termination with right to severance payment:
(i) Business needs: Those deriving from circumstances such as the employer’s modernization or rationalization, decreases in the productivity; and changes in the economy market; (ii) Termination at will: Only applicable to: (a) employees entitled to represent the employer (i.e. managers, assistant managers, agents or those having power of attorney), as long as, in all these cases they have power of attorney, and (b) employees who are within the confidence of the employer; and, (iii) Employer’s bankruptcy -although in this case severances are restricted-.
What, if any, additional considerations apply if large numbers of dismissals (redundancies) are planned? How many employees need to be affected for the additional considerations to apply?
No additional consideration. Redundancy is not a ground of termination of the employment relationship in Chile; however, it can be assimilated to business needs or at will of the employer, as explained in response 1.
What, if any, additional considerations apply if a worker’s employment is terminated in the context of a business sale?
There are no special rules regarding termination in the context of a business sale
What, if any, is the minimum notice period to terminate employment? Are there any categories of employee who typically have a contractual notice entitlement in excess of the minimum period?
A minimum 30-day prior notice is required in case of termination based on the grounds of business needs or termination at will. If this prior notice term wants to be waived, company must pay a compensation in lieu of prior notice, as mentioned in response to question No. 5.
Is it possible to pay monies out to a worker to end the employment relationship instead of giving notice?
Yes. In case of business needs and termination at will the minimum notice period of 30 days may be waived by paying to the worker a severance payment equivalent to one monthly remuneration capped in €3.216,15/USD3,557 approx.
Can an employer require a worker to be on garden leave, that is, continue to employ and pay a worker during his notice period but require him to stay at home and not participate in any work?
No. Employer may not unilaterally impose it, but it is permitted as long as the parties agree on it.
Does an employer have to follow a prescribed procedure to achieve an effective termination of the employment relationship? If yes, describe the requirements of that procedure or procedures.
The employer must communicate to the employee the dismissal by a letter indicating the ground of termination and the reasons of the dismissal. The dismissal letter must be delivered to the worker personally or by certified mail to the worker´s domicile indicated in the employment agreement.
A copy to the Labour Authority must also be sent within 3 or 6 business days (depending on the ground of termination).
Within 10 business days following the termination of the employment, the employer must make available to the worker a labour release. This labour release shall be signed and ratified before a Notary Public. The worker’s signature in the labour release shall be granted before a notary public.
If the employer does not follow any prescribed procedure as described in response to question 7, what are the consequences for the employer?
If the employer fails to serve the termination notice as required or within the term limits, these will not affect the validity of the termination; however, it may result in a fine issued by the Labour Authority which could be €188/USD208 to €3,768/USD 4167 approx. Also, if the labour release is not executed before Notary Public, it would not be enforceable.
How, if at all, are collective agreements relevant to the termination of employment?
No. In Chile, employment relationship may only be lawfully terminated for the grounds listed in the Chilean Labour Code. Under collective agreements it may only be agreed severances over the statutory amounts or severances paid under legal grounds for termination which do not provide statuory right to severance pay.
Does the employer have to obtain the permission of or inform a third party (e.g local labour authorities or court) before being able to validly terminate the employment relationship? If yes, what are the sanctions for breach of this requirement?
The employer must inform the termination of employment to the Labour Authority. If the employer fails in the notification to the Labour Authority, this will not affect the validity of the termination, but it may result in a fine imposed to the employer which could vary from €188/USD208 to €3,768/USD 4167 approx.
On exceptional cases, some limited protected employees have termination immunity and may not be terminated by business needs or termination at will, and may only be terminated for cause if a court accepts so after a lawsuit for authorization has been filed by the Church Employer. These cases are the following:(i) Employees on medical leave:(ii) Employees having parental leave protection. (iii) Employees whose child, spouse or common law partner has died: Termination immunity covers from death up to one month after. (iv) One employees´ representative at the Hygiene and Safety Committee (‘Comité Paritario de Hienege y Seguridad‘), appointed by the employees‘ representatives at such committee.The only available path to conduct termination of these employees is to agree a mutual agreement termination with the employees or persuade them to resign.
What protection from discrimination or harassment are workers entitled to in respect of the termination of employment?
Workers may file a claim before the Labour Authority and/or Labour Court seeking the declaration of a discriminatory or harassment dismissal, and the payment of the severances and penalties which will depend on the ground of termination invoked. For the limited protected employees mentioned in response to question No. 10, reinstatement is available.
What are the possible consequences for the employer if a worker has suffered discrimination or harassment in the context of termination of employment?
In case of labour lawsuit for violation of fundamental rights and discriminatory termination could be exposed to the payment of: (1) Compensation in lieu of prior notice; (2) severance; (3) surcharge of severance per time of services varying from 30% to 100% depending on the dismissal cause; (4) an additional severance equal to 6-11 monthly remunerations (uncapped); (5) pay damages including pain and suffering; (6) pay administrative fines; (7) be barred from entering into contracts with the State of Chile for a 2 years period. For the limited protected employees mentioned in response to question No. 10, reinstatement is available.
Are any categories of worker (for example, fixed-term workers or workers on family leave) entitled to specific protection, other than protection from discrimination or harassment, on the termination of employment?
Yes. Please see response to question No. 10.
Are workers who have made disclosures in the public interest (whistleblowers) entitled to any special protection from termination of employment?
No special protection by reason of retaliation, but a protection is available if the statement made by the employee falls under freedom of speech. If that is the case, employee will be afforded the protections mentioned in response to question No. 12.
In the event of financial difficulties, can an employer lawfully terminate an employee’s contract of employment and offer re-engagement on new less favourable terms?
What, if any, risks are associated with the use of artificial intelligence in an employer’s recruitment or termination decisions?
No other than when artificial intelligence is not involved in the recruitment or termination process.
What financial compensation is required under law or custom to terminate the employment relationship? How is such compensation calculated?
Statutory compensations are the following:
Compensation in lieu of prior notice: Applicable when the employment relationship is terminated as per answer number 3, section 3.2. above. The employer shall give at least 30 days advance notice to the employee with copy thereof to the Labour Inspection. This advance notice may be waived if the employer pays to the employee a severance payment equivalent to one monthly remuneration capped at €3.216,15/USD3,557 approx.
Severance payment: Applicable when the employment relationship is terminated as per answer number 3, section 3.2. above. If the employment relationship has been in force for more than one year, the employer shall pay the severance agreed by the parties, or the statutory severance if no agreement exists. The latter is equivalent to 30 days of remuneration for each year of service and fraction thereof greater than 6 months. There are two caps for this severance: (a) time of service may not exceed 11 years; and, (b) the monthly remuneration capped at €3.216,15/USD3,557 approx.
Pending and/or proportional vacation days: Laid-off employees are entitled to the payment of their pending and/or proportional days of vacations regardless of the employment termination ground. This payment is calculated over the full employee’s remuneration.
The parties could agree on the compensation amount as long as it is above the statutory ones. Compensation agreements are usually applicable for key employees by uncapped payments or are agreed in collective agreements (usually limited to a number of employees).
Can an employer reach agreement with a worker on the termination of employment in which the employee validly waives his rights in return for a payment? If yes, describe any limitations that apply, including in respect of non-disclosure or confidentiality clauses.
Yes. Mutual agreement termination is recognized as a valid termination ground. The payment to the employee shall be agreed in order he/she could validly waived his/her rights against the employer. This termination agreement and labour release must be in writing and shall be signed before a Notary Public.
Is it possible to restrict a worker from working for competitors after the termination of employment? If yes, describe any relevant requirements or limitations.
Yes. Even though no specific legislation governs non-competition clauses; Chilean courts and practice have recognized non-competition covenants are admissible under Chilean law under limited circumstances. The following requirements must be met: (1) workers´ consent; (2) a legitimate supporting reason to protect the business interest of the former employer (e.g. avoiding facilitation to direct competitors); (3) a limited scope and time of effectiveness; and, (4) consideration paid to the worker a compensation amount.
Can an employer require a worker to keep information relating to the employer confidential after the termination of employment?
Yes. However, such clauses are permitted and customary for individuals in key positions who handle confidential or sensitive information of the employer.
Are employers obliged to provide references to new employers if these are requested? If so, what information must the reference include?
What, in your opinion, are the most common difficulties faced by employers in your jurisdiction when terminating employment and how do you consider employers can mitigate these?
How to match facts supporting a termination to the termination grounds provided by law. The employers could mitigate this difficulty by preparing alternatives for the termination process (e.g. mutual agreement termination).
Are any legal changes planned that are likely to impact the way employers in your jurisdiction approach termination of employment? If so, please describe what impact you foresee from such changes and how employers can prepare for them?
There is a law proposal reform submitted on November 2021 to congressional discussion that seeks to eliminate the 11-year cap on severance per years of service in case of termination for business needs, termination at will and employer’s bankruptcy.
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