I INTRODUCTION

Labour relationships in Chile are governed by the Chilean Constitution, international treaties and the Chilean Labour Code (LC), among others. The LC is the main law that governs employment relationships and regulates the main aspects of employment law, including individuals, collective matters, outsourcing, labour procedures and labour court regulations. The Chilean Constitution of 1980 contains constitutional labour provisions related to the freedom of employment, non-discrimination, freedom of association and the right to social security. Other primary statutes and regulations related to employment are: Law No. 16,744 regarding labour accidents and work-related illnesses; Decree Law (DL) No. 3,500 and its modifications, regarding the private pension system; and Law No. 19,728 regarding unemployment insurance.

The Labour Authority, a public entity under the Labour Ministry, is in charge of interpreting and enforcing employment statutes. Additionally, issues related to the enforcement of labour laws are decided by the local labour courts of the region where the services have been rendered by the employee. Employers can file lawsuits before the labour courts against fines imposed on them by Labour Authority officers.

Local labour court decisions are subject to appeal before the courts of appeal of each city. The Supreme Court only intervenes in the event of conflicting decisions of the courts of appeal with regard to a labour issue. In principle, labour courts are not obliged to follow the Supreme Court’s criteria, since case law has no precedential effect in Chile. However, these decisions are often accepted by the labour courts.

II YEAR IN REVIEW

i The Labour Reform

On 8 September 2016, Law No. 20,940, commonly known as ‘The Labour Reform’, was published in the Official Gazette, introducing significant changes to the LC, largely changing the rules and procedures for collective bargaining and the formation and establishment of unions. This law will come completely into force on 1 April 2017.

The cornerstones of this law are:

  • a extension of the employees suitable for collective bargaining;
  • b extension of the right of information to unions;
  • c modification of the procedure for formal collective bargaining;
  • d prohibition of the replacement of employees on strike;
  • e creation of a minimum floor for collective bargaining;
  • f expansion of matters susceptible to collective bargaining;
  • g new hypothesis of disloyal and anti-union practices and increase of the fines for these concepts; and
  • h modification of the requirements demanded for extension of the benefits of a collective contract to non-unionised employees.

The Labour Reform has been criticised since it has various gaps that will hamper the collective bargaining. However, it is expected the dictation of at least 11 rulings by the Labour Authority for the interpretation and application regarding different matters related to this law before April 2017.

ii Unemployment rate

In the trimester June–July–August 2016, the unemployment rate was 6.9 per cent, according to the National Institution of Statistics (INE).

III SIGNIFICANT CASES

In 2016, the Supreme Court issued an important ruling declaring that a penalty for nullity of a dismissal (which applies to an employer who dismisses an employee without having paid all pension and social security obligations) applies when a judicial ruling has determined the labour contractual link between the parties, since the labour relationship materialised and not from the moment where the Court declared the existence of the employment relationship. This ruling changed the previous opinion of the Court.

On another occasion, the Supreme Court stated that nullity of the dismissal also applies in case of ‘indirect dismissal’ or ‘self-dismissal’, this is, that the employee ends his labour relationship based on serious improper acts of the employer or non-fulfilment of the employer’s obligations. The Court stated that the above is founded on the conception that the ending of the relationship, by the aforementioned causes, is considered as a dismissal of the employer and not a resignation of the employee.

In another judgment, the Supreme Court, when deciding the nature of the labour relationship between the parties (i.e., employer and employee) that celebrated successive temporal labour agreements for the conclusion of a specific work or services, stated that under these circumstances the relationship between the parties turned to be indefinite, even if they concluded in between release agreements. The aforementioned is based on the condition that the successive contracts between the same parties shall end and start continuously.

IV BASICS OF ENTERING AN EMPLOYMENT RELATIONSHIP

i Employment relationship

The employment contract must be set out in writing within 15 days of the employee’s first day of employment. In contracts for less than 30 days or whose duration is determined by the temporary work for which the employee was hired, the period is five days. Any amendment must be set forth in writing and signed by the parties on the back of the employment contract or in a separate appendix.

The employment contract must contain at least:

  • a the place and date of its execution;
  • b the name of the parties;
  • c the name, nationality and birth date of the employee, as well as the start date of his or her employment;
  • d a description of the nature of the services and the place or city where the services must be rendered;
  • e the amount of remuneration agreed, which cannot undercut Chile’s minimum wage (approximately US$394)22 and which must be paid at least monthly in the Chilean currency;
  • f the length and distribution of daily working hours, except when the employer has a shift system in place, in which case its own internal regulations shall apply; and
  • g the term of the employment agreement.

If no written contract is signed within the 15-day term or five-day term as the case may be, the employer could be fined between one and five UTM3 per employee. If the written contract is not signed during this period, then the law presumes that the stipulations of the contract are those alleged by the employee. In the latter case, the employer shall bear the burden to prove otherwise. However, the LC provides that, if the employee refuses to sign, the employee can be dismissed without any severance unless he provides evidence that the written contract does not reflect the conditions in which he was hired.

Fixed-term contracts can be executed for a maximum duration of one year. In the case of managers or individuals who have obtained a professional or technical degree granted by a state-recognised institution, the maximum duration is two years. If the fixed-term employment contract is terminated unilaterally by the employer before the date provided in the contract, the employer must pay the employee all remuneration up to that date. A fixed-term employment contract can be renewed only once. If the employee continues to work after the expiration of the term or its renewal, the employment contract becomes indefinite. The same effect occurs upon the second renewal of a fixed-term employment contract.

Nonetheless, there are other terms requiring inclusion in the employment contract; the LC provides for statutory rights for employees, such as legal profit-sharing bonuses and vacations.

According to the LC, companies that make net profits during the fiscal year are required to establish a profit-sharing plan, which may be carried out by either:

  • a distributing 30 per cent of all profits pro rata to employees; or
  • b by paying to each employee an amount equivalent to 25 per cent of the total annual remuneration of such employee, capped at 4.75 monthly minimum salaries per year, unless the parties have agreed to a higher amount.

Instance (a) applies by default if the parties do not specifically agree to (b) or an alternative option. If the parties have not agreed on one of the options described above in the respective employment or collective agreement, then the employer is free to choose the legal profit-sharing bonus that will be applied to employees individually or collectively, once every fiscal year has ended. If the employer chooses to pay the legal profit-sharing bonus according to option (a), he or she can switch to option (b) for the entire workforce or a part thereof, at the end of the following fiscal year.

Regarding holidays, employees who have worked for at least one year for the same employer are entitled to 15 working days of annual leave. During annual leave, employees are entitled to their full remuneration. After the first 10 years of service for one or more employers, annual leave is increased by one day for every three years of employment with the current employer.

ii Probationary periods

In general, the LC does not provide for a probationary period. The only exception is a two-week term provided for domestic employees.

iii Establishing a presence

Having a Chilean employee rendering services in Chile for a foreign employer is not specifically contemplated in Chilean labour law. Instead, administrative rulings have dealt with this matter and provided guidelines. Regardless of where the employment contract is subscribed, if its effects take place in Chile it will be governed by Chilean law. Therefore, the minimum statutory rights of an employee in Chile shall be part of the respective employment agreement.

The Labour Authority has indicated that if an employer is based abroad, an agent should be appointed in Chile with sufficient authority to keep proper documentation and administer other requirements. In turn, the tax authorities have indicated that because the employer is not based in Chile, employee income tax should be withheld and paid by the employee himself.

From a social security point of view, the Labour Authority has provided that it is recommended that the employer’s agent withhold and make social security payments on the employee’s behalf. In the absence of an agent, one way of ensuring that the employee is making the required withholdings is by requesting receipts of the previous month’s payments before paying the monthly wage. Even if an agent is appointed for the above purposes, the foreign company is deemed to be the employer for any labour, social security and tax purposes.

The employer may also maintain relationships with agents, consultants or contractors. In order to avoid complications, the employer must verify that these services do not legally correspond to an employment relationship. In determining whether the employee is actually an employee or not, the standard used under Chilean law is that of ‘dependence and subordination’. Unfortunately, the law does not define these terms and, whether the standard is met or not will depend greatly on the facts of each case. However, the Labour Authority and judicial precedents have provided some guidelines on what to look for. In this sense, they have consistently indicated that dependence and subordination is revealed in acts such as the ‘continuity of services rendered in the workplace, the employee’s assistance obligation, the fulfilment of a work schedule, the obligation to follow orders or instructions given by the employer, the surveillance of the employee’s performance of activities, the subordination to different kind of controls, the obligation to report to a superior about the work performed, etc.’ It is not that all elements needs to be present, or that a single element will trigger the definition, but rather a mix of elements, which will vary from case to case.

According to the Chilean Tax Law, foreign companies with a permanent establishment in Chile (such as offices, agents or representatives) may be taxed with a 35 per cent withholding tax. Although there is no legal definition of permanent establishment, except in certain double taxation treaties entered into by Chile, the tax authorities have indicated that a permanent establishment consists of the establishment of an office or branch that assumes the complete representation of the foreign entity and carries out a formal activity, and that is able to close transactions according to the terms indicated. As a consequence, if the services of an employee, contractor or agent include assuming the representation of the foreign entity or closing business transactions on their behalf, the Chilean tax authorities could deem that the operations in Chile constitute a permanent establishment of the company.

According to Chilean law, all employees must pay approximately 13 per cent of their salary to a pension fund, which accumulates in an individual account. They must also pay 7 per cent of their salary towards health insurance.4 These contributions are withheld by the employer from the employee’s monthly salary and then paid directly to the pension fund administrators and public or private healthcare institutions.

The employer must provide insurance for labour accidents and professional diseases. The contributions are as follows: a basic contribution of 0.9 per cent of the employee’s salary; plus an additional contribution (which varies based on the company’s activity and associated risk, limited to 3.4 per cent of the employee’s salary).

Regarding unemployment insurance, both employers and employees must contribute, with employees providing 0.6 per cent of their salary and employers providing 2.4 per cent of the sum of the employee’s salary.

The tax rate for employees is provided in Section VII, infra.

V RESTRICTIVE COVENANTS

With regard to non-compete covenants, there are two important moments or stages to consider. The first is during the employment relationship and, the second, is after the employment relationship is terminated. If an employee breaches a non-compete covenant included in the contract while still in employment, the employer can terminate the contract without having to pay severance. After an employment relationship ends, the non-compete covenant may be included in the release agreement but the enforcement of it may be difficult given the absence of specific statutory rules and, more importantly, because the Chilean Constitution guarantees all individuals the freedom to work, to be hired freely and to select their work. The courts tend to protect these rights.

In some cases, such courts have declared non-compete clauses of former employees to be null and void (even in a case where there was an indemnity payment from the employer). The courts typically analyse the covenant and test it against the right and freedom to work. If the court deems that, by breaching a non-compete clause, the employee infringes the property rights of the employer, and that such breach is more serious than protecting the employee’s freedom to work, the court will rule in favour of the employer. However, as indicated, in our experience the courts tend to protect the freedom to work and, subsequently, to employees. Notwithstanding the foregoing, such clauses may be useful since they tend to have a deterrent effect on the employee.

However, in order for such a covenant to stand a chance in court it would have to be reasonable under the circumstances and be restricted in time, geographic scope and subject matter. Payment during the covenant is not legally required and, although it may help, there is a chance that anything below full remuneration may be deemed insufficient by the courts. This provision can be included in the employment agreement if necessary.

VI WAGES

i Working time

The LC provides that the maximum permissible working week is 45 hours, distributed over no more than six and no fewer than five days.

Managers and administrators, as well as those who work without direct supervision, at home or who do not work in the workplace, are excluded from the application of such limits. In other instances, an employee cannot choose to be excluded from such restrictions or limitations. Ordinary work per day cannot exceed 10 hours. There is no limitation on whether the distribution of the 45-hour maximum working schedule is during day or night shifts.

Employees cannot work on public holidays or Sundays, with certain exceptions, such as:

  • a employees who work in retail and directly attend or serve the public;
  • b those who work in ports or on ships;
  • c those who provide services that require continuity due to the nature of the services, technical reasons, or to avoid damage to the public interest or to industry; and
  • d those who repair damages caused by force majeure if work cannot be delayed.

Such employees will be entitled to one day off in lieu of every Sunday or public holiday worked. Also, the employer must give the employee’s covered in points (a) and (c) at least two Sundays off per month.

The Labour Authority may authorise a special distribution of the work period whenever the nature of the activity performed requires it. In such a case, it is necessary for the employer to prove that, considering the type of work, the special features of the services provided and the location of the company’s premises, it is necessary to obtain a special working schedule. However, the aforementioned authorisation is discretionary for the Labour Authority, requires the agreement of the employees and may only be granted for a specific period of time.

ii Overtime

All employees not excluded from the maximum working hour limitations are entitled to overtime payments. Overtime can be agreed only to meet the temporary needs of the company and only two hours of overtime are allowed per day. This payment is calculated at a rate of 1.5 times the ordinary hourly salary.

An overtime agreement must be in writing, have a duration of no more than three months and may only be renewed by the mutual agreement of the parties.

VII FOREIGN WORKERS

i Foreign employees

All employees, whether foreign or Chilean, are equally protected by Chilean labour legislation. In companies with more than 25 employees, at least 85 per cent of the employees must be Chilean, with this percentage calculated as a fraction of their total labour force in Chile. This restriction, however, does not apply to foreign technical experts who are therefore excluded from the percentage mentioned above. For these purposes, those foreign nationals whose spouses or children are of Chilean nationality (or who are a widow or widower of a Chilean citizen) are considered Chileans. Similarly, foreign nationals with a residence in Chile for more than five years are also considered Chileans for the purposes of this rule.

ii Visas

The Chilean immigration laws provide that all foreign nationals coming into the country shall obtain a visa from the competent authority. Foreign employees coming to work in Chile shall request a temporary or work visa for these purposes.

The purpose of a work visa is to enter Chile to fulfil the stipulations of an employment agreement that will take effect in the country. This visa is granted for a maximum of two years, renewable for a further two years. Nevertheless, at the end of this period a permanent visa may be requested.

Temporary visas are granted, inter alia, to foreign nationals with family links, business interests in Chile or to employees of foreign companies being paid abroad. Foreign nationals holding this type of visa may pursue all kinds of lawful activities within Chile. Temporary visas are granted for a one-year period, renewable for another year. At the end of the second term, a permanent residence visa must be requested by the interested party in order to remain a Chilean resident.

If a visa is applied for abroad, it may be requested at the corresponding Chilean consulate. If the foreign national is in Chile, the visa will be requested at the Ministry of the Interior. The advantage of requesting the visa abroad is the fact that it is less time-consuming to do so. Due to the increase in immigration registered since 2012, there are several cases in which foreigners have not been allowed to enter Chile for work purposes without a temporary or working visa already granted by a Chilean Consulate.

It is important to stress that visa requirements may vary depending on the nationality of the applicant. Family members of the foreign applicants will be granted the same visa, although it will not allow them to perform remunerated activities in Chile.

iii Taxation

Individuals domiciled or resident in Chile are required to pay income tax on their worldwide income. Please note that this is a general rule and there are international tax treaties in place with some countries to avoid double taxation of income earned outside Chile.

Income derived from independent work is taxed by overall income tax, with progressive rates ranging from zero to 40 per cent. This tax must be declared and paid by the individual by April of the following year.

Individuals also pay taxes on their dependent work-related income. In this case, the applicable tax is the second category tax, with progressive rates ranging from zero to 40 per cent,5 which must be withheld, declared and paid by the employer within the first 12 days of the month following the remuneration payment to the employee. The amount of tax is calculated based on an individual’s dependent work-related monthly earnings minus social security contributions.

Foreign nationals that are resident or domiciled in the country are subject to taxes in Chile on their Chilean-source income only during the first three years after their arrival. At the end of this period, foreign nationals may apply for an extension of such term. After the original three-year period (or its extension, if granted) has lapsed, foreign nationals are subject to taxes in Chile on their worldwide-source income, just as any normal Chilean domiciled or resident individual is.

According to the Chilean Tax Code, ‘residents’ are individuals who remain in Chile for over six months in any calendar year or more than six months on aggregate within two consecutive fiscal years. The Internal Revenue Service (IRS) has interpreted this to mean six uninterrupted months. The IRS has also understood ‘domicile’ to be acquired when an individual transfers his or her family and centre of operations to Chile (moves to Chile with his or her family, enters into a work contract with a Chilean entity, rents or buys a house, etc.).

Income derived from assets located in Chile or activities carried out in the same country are deemed as Chilean-sourced income, regardless of the domicile or residence of the beneficiary of that income.

If an individual does not comply with the requirements to be deemed a Chilean resident or domiciled in the country, he may be liable for a sole 35 per cent withholding tax in connection with non-specified services. This tax will have to be declared and paid in to the Chilean Treasury by the withholding agent before the 12th day of the following month.

VIII GLOBAL POLICIES

The LC provides that all companies with 10 or more employees must have a handbook (internal rules of order, hygiene and safety). This handbook must be written in Spanish and contain minimum and mandatory regulations regarding certain matters such as: leave of absence,6 conflict resolution, substance abuse, sexual harassment and disciplinary measures. This handbook must also contain a special chapter with rules and instructions on accident prevention and health and safety guidelines to be observed by all employees.

No authorisation of employees, unions or public entities is required to implement this handbook, but they may contest the legality of its provisions. For the handbook’s validity, the company must provide a written copy of it to all of its employees and unions with 30 days in advance and post this handbook with the same anticipation in two visible sites of the establishment. The company must also send a copy of this document to the Labour Authority and to the Health Ministry within the next five days as of the validity of the handbook.

IX TRANSLATION

According to Labour Authority criteria, the employment contract, employment contract addenda, internal rulings and employer policies must be written in Spanish. Notwithstanding, the contract may be executed in English and Spanish, both of which are equally binding to both the employer and the employee. In case of doubt as to the interpretation of the employment agreement, the Spanish text shall prevail.

X EMPLOYEE REPRESENTATION

Unions are permitted and regulated under Chilean law. To establish a union in a company that has more than 50 employees, a minimum of 25 employees representing at least 10 per cent of the total number of the company’s employees is required, unless the company has no other union, in which case the union can be established with eight employees, but shall complete the quorum required within the first year. If the company has 50 or fewer employees, a union may be established with only eight employees.7 Notwithstanding the percentage that the employees may represent, a union can be established with 250 or more employees of the same company.

Unions are managed by a board of directors that has a different number of representatives according to the number of union members. For example, three representatives for a union that has between 25 and 249 members. These representatives are elected by the unionised employees and may not be dismissed during their tenure and for six months after the conclusion of such duties. The term of office and the frequency of meetings will depend on the statutes of each union.

The scope of the negotiation unit is defined in the law and is generally restricted to a company and its unions (including temporary associations of workers for the purposes of negotiations). Only through mutual agreement among the parties may collective negotiation involve more than one company and unions belonging to different employers. Please note that employees involved in collective negotiations are also protected from dismissal for a period starting 10 days before negotiations begin and ending 30 days after they conclude.

A company may not engage in any activity to restrain, limit or coerce its employees in the exercise of their self-organisation rights. Since membership or non-membership cannot be imposed as a condition of employment, a company may not engage in any discrimination on account of membership or participation in union activities nor interfere, restrain or coerce any employee to join or withdraw membership from any labour organisation.

XI DATA PROTECTION

i Requirements for registration

Law No. 19,628 (the Personal Data Act), which governs the protection of personal data in Chile, provides as a general rule that the processing or use of personal information must be authorised by law or by the owner of the data. In specific cases, such as the handling of personal data of a financial, banking or commercial nature that comes or is collected from public sources, no consent is required.

Also, no authorisation is required if private legal entities handle personal data for exclusive use by themselves, their associates or the entities to which they are affiliated, as long as it is used for statistical or rate-setting purposes or for their general benefit. Sensitive information may only be transferred or used if authorisation is granted by law or by the owner of the data, or if such data is necessary for granting health benefits to the information subject. In general terms, the rights of the subject concerning his or her personal data may not be limited by any act or convention.

In turn, the LC does provide a general rule that requires employers to treat confidentially any private information and data in relation to their employees to which they have access as a result of the employment relationship.

ii Cross-border data transfers

The Personal Data Act does not impose restrictions based on where the data was originally accumulated or is currently stored. Despite the restrictions provided above, there is no other limitation with regard to the transfer of personal data to other countries.

iii Sensitive data

Sensitive Data is defined by the Personal Data Act as personal data referred to moral or physical characteristics of a person or to events or facts of his or her private life (religion, race, political views, sex life, health status, etc.). Sensitive data cannot be subject to treatment unless expressly authorised by the law, the owner of such data or for the purposes of obtaining health benefits.

iv Background checks

In general terms, Chilean labour law does not impose prohibitions or restrictions on background checks. The employer can obtain information regarding applicants without any statutory limitations. Notwithstanding, companies should avoid questions, tests, examinations, or inquiries that could be considered discriminatory. The LC prohibits any distinction, exclusion or preference made on the basis of race, colour, sex, age, marital status, union affiliation, religion, political opinion, nationality, national extraction or social origin which could nullify or impair equality of opportunity or treatment in employment. Any distinction, exclusion or preference in respect of a particular job based on the inherent requirements thereof shall not be deemed to be discrimination.

The LC expressly prohibits employers from requesting certificates or declarations regarding the credit and financial backgrounds of applicants, except for those employees empowered to represent the employer as managers, deputy managers, agents or other company representatives, or those in charge of collecting, managing or maintaining custody of funds or valuables of any nature. However, the recent amendment of the Chilean Personal Data Act provides that the employer is not allowed to request from applicants any personal data of a financial, banking or commercial nature for purposes of recruitment, or as a requirement to apply to a public or governmental job. Courts may decide if the LC or the Chilean Personal Data Act will prevail. Also, the LC prohibits any kind of discrimination on the grounds of pregnancy.

XII DISCONTINUING EMPLOYMENT

i Dismissal

The employer may terminate the employment contract with or without cause. If the employment is terminated by the employer on the grounds of the needs of the company (such as those required for the rationalisation or modernisation of systems, a fall in productivity or changes in market conditions or the national economy that make the loss of one or more employees necessary), unless a higher severance payment is agreed by the parties, the employee who rendered services for the employer for at least one year will be entitled to a legal severance of an amount equal to one month’s salary for each year worked or a fraction thereof if there is a remainder of more than six months. This payment is subject to the following limitations: the severance is capped at 11 months’ pay (i.e., 11 years of service) and the remuneration considered for these purposes is capped at 90 Unidades de Fomento (UF)8 per month.

In addition, the employer must give the employee 30 days’ written notice before dismissal, notifying in that same period the Labour Authority, unless the employer agrees to pay the employee compensation equivalent to 30 days of work in lieu of notice (also capped at 90 UF).

The employee is not entitled to such legal severance in the event of resignation, death, mutual agreement, expiration of the employment agreement; conclusion or completion of the work or service that gave origin to the employment agreement; force majeure or cases specifically indicated by law and in the event of dismissal due to faults incurred by the employee in the performance of his duties.

The employment agreements of union leaders and pregnant women cannot be terminated except with the approval of a labour court. The LC also provides that the employment agreements of personnel on sick leave cannot be terminated on the grounds of the needs of the company.

Upon termination of an employment agreement, there are other payments that may apply regardless of the cause of termination. Such payments are proportional vacations and the legal profit-sharing bonus that may or may not apply depending on each case.

Also, if an employee is dismissed, regardless of the cause of termination, the employer must give the employee written notice and also notify the Labour Authority of such termination within three working days following termination.

If an employee is dismissed without any cause or if he or she considers that the dismissal is not sufficiently justified, the employee is entitled to file a labour lawsuit before the labour courts and should claim compensation in lieu of prior notice amounting to severance payments and damages for wrongful termination of up to 100 per cent of the legal severance.

Employees who enjoy immunity from dismissal (union leaders and pregnant women, among others) but who are wrongfully dismissed are entitled to claim either for reinstatement to the same post or for compensation in lieu of notice and severance payments. Furthermore, if the courts nullify the dismissal of any employee by considering it discriminatory and serious, the employee can choose either to be reinstated in the same work or receive the aforementioned compensation.

Pursuant to the LC, a termination and release agreement must be executed within a 10 working-day term (counted from the date former employee ceases to render services for the company) whenever an employment relationship is terminated. Likewise, the employer is also obliged to make available to the employee any pending amounts owed due to termination of the employment agreement within the same term. This agreement must be signed and ratified by the employee before a notary public. Failure to ratify this document before a notary public prevents the employer from invoking it as evidence of payment to the employee (including severance and others) or of the employee’s waiver of any rights arising from the employment. However, the obligation to execute a termination and release agreement is not mandatory for fixed-term employment contracts that do not exceed 30 days, renewable for the same period.

ii Redundancies

Chilean labour law does not provide special circumstances or requirements for mass redundancies or collective dismissals. There are no information, consultation or mandatory government filing or agency notification requirements, other than that a copy of the notice to employees in the event of termination be sent to the respective Labour Authority.

XIII TRANSFER OF BUSINESS

Under Chilean labour law, any change in the ownership of an employer, whether through sale, merger, division or any other form, is irrelevant to employees, whose rights under individual or collective contracts with the employer are binding on the new owners of the employer.

Accordingly, the continuation of the rights and obligations of the employees, in the event that all or part of the company (or its assets) is transferred, occurs by law. For this reason, according to the Labour Authority, it is not necessary to execute a new employment contract or modify existing contracts.

XIV OUTLOOK

The future entry into force of the Labour Reform is one of the most relevant issues for the Chilean economy in 2017. It is expected that the following months will be of considerable movement in employment matters. The aforementioned makes 2017 a year of challenges because, at least until November 2016, there is no greater certainty of how the Labour Reform will be applied or will impact the economic activity and the unemployment rate.

Footnotes

1 Alberto Rencoret is a partner (head of department) and Dominique Manzur is an associate at Urenda, Rencoret, Orrego y Dörr.

2 The Law No 20.935 has established in advance the minimum monthly wage applicable for 2017 (approximately US$394).

3 The UTM is a monthly unit determined by law and continually updated, which serves as a measure or reference for tax purposes.

4 For 2016, the statutory deductions for pension, health and labour accidents insurance are capped according to a monthly salary of 74.3 units of account. Unemployment insurance is capped at 111.4 units of account. The 2017 caps will be set out by the Pension Supervisor in January 2017.

5 As of January 2017, progressive rates referred in this paragraph and the above will be reduced, with the maximum rate being 35 per cent, according to Law No. 20,780.

6 Under Chilean labour law, employees are entitled to sick leave based on a doctor’s orders. During his or her absence, the employee will generally receive an amount equivalent to his or her salary, paid by his or her health insurance provider. Absences resulting from work-related accidents will be paid by a special entity in charge of such accidents. In accordance with the terms of this sick pay, the healthcare institutions will pay incapacity allowance starting on the fourth day of absence if the medical leave is for less than 10 days. If the medical leave is for more than 10 days, the healthcare institution will pay incapacity allowance starting on the first day.

7 From 1 April 2017, these eight employees shall represent the 50 per cent of the total number of the company’s employees.

8 The UF is the principal index-linked unit used in Chile, which changes daily to reflect the changes in Chile’s Consumer Price Index (IPC). It is determined by the Chilean Central Bank.