This country-specific Q&A provides an overview to Employment & Labour Law laws and regulations that may occur in Chile.
Does an employer need a reason in order to lawfully terminate an employment relationship? If so, describe what reasons are lawful?
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 worker: These are termination grounds originated in a unilateral decision or circumstance of the worker.
Mutual agreement of the parties:
Resignation of the worker;
Death of the worker;
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:
Lack of probity in the performance of duties; sexual harassment; physical aggression; harassment, infliction of injuries; serious immoral behaviour affecting the worker;
By carrying out activities in the same line of business as the employer;
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;
The abandonment of work by the worker: (a) unjustified departure from the workplace during working hours; and, (b) refusal to perform the services agreed in the employment agreement;
Conduct affecting the safety or functioning of the business or the safe performance of work by other workers or the health of other workers;
Wilful act of damage against the facilities, machinery, tools, products or goods of the employer;
A serious breach of the worker’s obligations in the employment relationship.
Causes for termination with right to severance payment:
Business needs: Those deriving from circumstances such as the employer’s modernization or rationalization, decreases in the productivity; and changes in the economy market;
Termination at will: Only applicable to: (a) workers 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) workers who are within the confidence of the employer; and,
What, if any, additional considerations apply if large numbers of dismissals (redundancies) are planned?
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 under Section 1.2 above.
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?
Labour law only requires a minimum notice period of 30 days in case of termination due the grounds of business needs and termination at will. This notice period may be waived according to answer number 5 below.
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 €3.274,97/USD3,731 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 say 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 €63,69/USD72,01 to €3,821/USD 4319,89 approx.
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 right to severance pay.
Does the employer have to obtain the permission of or inform a third party (eg 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?
No permission is needed from third parties to conduct termination, although 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 €63,69/USD72,01 to €3,821/USD 4319,89 approx.
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.
No authorization is needed from third parties to conduct termination, although the employer must inform the dismissal to the Labour Authority.
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:
Compensation in lieu of prior notice;
surcharge of severance per time of services varying from 30% to 100% depending on the dismissal cause;
an additional severance equal to 6-11 monthly remunerations (uncapped);
pay damages including pain and suffering;
pay administrative fines;
be barred from entering into contracts with the State of Chile for a 2 years period.
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 (e.g. pregnant worker; workers who are under medical leave; workers who are union directors and president of the Health and Safety Committee).
Are workers who have made disclosures in the public interest (whistleblowers) entitled to any special protection from termination of employment?
What financial compensation is required under law or custom to terminate the employment relationship? How do employers usually decide how much compensation is to be paid?
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). If no agreement exists regarding compensation, the following rules are applicable:
Compensation in lieu of prior notice: Applicable when the employment relationship is terminated as per answer number 1, section 1.2. 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 €3,274.97/USD3,731 approx.
Severance payment: Applicable when the employment relationship is terminated as per answer number 1, section 1.2. 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 €3,274.97/USD3,731 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.
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.
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:
a legitimate supporting reason to protect the business interest of the former employer (e.g. avoiding facilitation to direct competitors);
a limited scope and time of effectiveness (maximum 2 years); and,
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?
What, in your opinion, are the most common difficulties faced by employers when terminating employment and how do you consider employers can mitigate these?
The most common difficulties are related to adjust a termination relationship under the grounds regulated by law. In fact, these termination grounds do not consider reasons related to worker’s performance or at will (the current “at will” ground is only applicable to some key employees). 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 on the way employers approach termination of employment? If so, please describe what impact you foresee from such changes and how employers can prepare for them?
The current government has announced a change to the current compensation system replacing it with a limited (50%) guaranteed compensation in case of termination for any ground. This initiative has not even entered as a bill and it is expected to be adjusted considering political and economic considerations; however, a modification of the compensation system in this sense could have an economic impact for the employers, because they would have to maintain a sufficient provision of funds in case of termination of the employment relationship based on grounds that do not depend on employer’s will (e.g. resignation or by worker misconduct).