The Employment Law Review: Chile

Introduction

i Legal framework

The rights and duties of employers and employees in Chile arise from different statutory sources, including the National Constitution, the Labour Code, statutes and decrees, and judicial and administrative decisions. The role of the Labour Directorate in issuing opinions on the interpretation of statutes is relevant and opinions may change from time to time.

Employment agreements

Individual and collective bargaining agreements, as well as mandatory employers' internal regulations, may create rights for employees in addition to those provided by law. In such cases, employers must comply with the greater level of benefits as provided for by applicable agreements.

National Constitution

The Constitution of Chile establishes several rights relating to employment and social security, including:

  1. the right of all people to work in the profession of their choice. It prohibits employment discrimination based on characteristics other than personal ability.2 However, it does allow for conditions to be set regarding legally established qualifications for employment in certain professions, including the requirement of a university degree;3
  2. employees – not unions – shall decide whether to engage in collective bargaining;
  3. a law or public authority may not require that individuals be affiliated to, or not affiliated to, a particular organisation or entity as a condition of carrying out any task or performing any employment;4 and
  4. certain rules regarding unions, collective bargaining, strikes and social security.

Laws

Most of the laws currently governing employment relationships in Chile originated as legislated statutes or executive decrees issued under legislative authority.

Relevant laws are: Law No. 17,322 on social security payments; Law No. 16,744 on occupational accidents and diseases, and its Executive Regulation; Decree Law 3,500 on the pension system and its Executive Regulation; Law No. 20,609 on prohibiting discrimination; Law No. 19,799 on HIV treatment; Executive Law Regulation No. 2 of 1967 on organisation of the Labour Directorate; Law No. 19,728 on unemployment insurance; and Supreme Decree No. 594 on basic health and environmental conditions in the workplace.

Further, International Labour Organization Conventions apply, such as those on unions and collective bargaining (Nos. 87 and 98) and the elimination of employment discrimination (Nos. 100 and 111). There are also several international conventions for the avoidance of double social security requirements (27 bilateral and one multilateral).

Legislation on union activity, which came into effect on 1 April 2017, boosted the legal and economic weapons available to unions during a collective bargaining. This legislation introduced essential new rules, which state that strikers may not be replaced (by neither external nor internal personnel), collective agreement coverage may not be extended to non-union employees unless agreed by the union, and relevant payroll information must be disclosed to unions in anticipation of a collective bargaining process.

Judicial and administrative decisions

Because Chilean labour statutes are sometimes light on details, court and administrative decisions are important in determining rights and obligations in employment relationships, but the jurisprudence itself is sometimes contradictory.

ii Labour courts and enforcement agencies

The main administrative enforcement agency is the Labour Directorate, which is primarily responsible for ensuring that employers comply with the labour laws. To this end, the Labour Directorate conducts compliance inspections on its own initiative or following receipt of a complaint by workers or their representatives.

The Labour Directorate has the authority to apply fines against violators. It is also authorised to interpret the labour laws and has developed a large body of administrative jurisprudence on this subject.

Other relevant enforcement agencies are the Regional Health Authority, Workmen's Compensation Agency, Social Security Superintendency, Pension Superintendency and Vocational Training Service.

The judicial structure, which includes specialist labour courts, is as follows:

  1. court of labour of first instance; typically a first instance dispute takes between three and six months;
  2. court of appeal, with faculties to review court of labour decisions in specific limited cases;
  3. Supreme Court, only with the faculty to unify case law if certiorari is granted; and
  4. labour collection courts, the aim of which is to enforce court decisions and other documents, the fulfilment of which is binding.

The main factor determining court jurisdiction is the defendant's domicile or the place where the employee rendered services, at the employee's volition.

In general, the burden of proof is with the plaintiff. For wrongful dismissal claims, the employer has the burden of proof on the veracity of the facts stated in the letter of notification regarding the termination of employment.

Year in review

Law No. 21,327, effective as of October 2021, modernises the Labour Directorate and establishes the following changes regarding the recording of employment documentation in electronic form:

  1. It requires employers to register electronically the hiring of employees and terminations, information and work documents, and a company email address.
  2. It requires the employment agreement to indicate the email addresses of the employer and the employee.
  3. It allows the Labour Directorate to carry out remote electronic inspections, and requires the creation of an electronic system for monitoring requests made to the Labour Directorate.
  4. It allows the implementation of voluntary mediation before the Labour Directorate, which in special cases can be assisted by an expert paid for by the authority.

Law No. 21,327 establishes that if the authority declares a state of emergency for public calamity or a health alert arising from an epidemic or pandemic, the employer must offer the option of teleworking to those employees who are responsible for the care of preschool children or persons with disabilities.

Significant cases

The Labour Directorate rendered a decision not to support a covid-19 mandate at the workplace, not even for essential and healthcare employees. In a controversial decision, employers were not allowed to deny access to work premises to non-vaccinated employees.

The Labour Directorate issued Opinion No. 1,116/004 of 6 March 2020, setting criteria and guidelines regarding how employment has been affected by the health emergency generated by covid-19. The opinions and decrees issued by Social Security Superintendency No. 1,013-2020 and Ministry of Health Decree No. 6 of 2020 did not impose new obligations or restrictions on employers, but reiterated existing obligations and set forth recommendations on how to proceed to prevent risks of contagion in the workplace and to collaborate with containment measures aimed at preventing the spread of covid-19.

Basics of entering an employment relationship

i Employment relationship

Employment agreements are required by law for all dependent workers (employees) and must be executed in writing no later than 15 calendar days after the starting date, or five calendar days for employment contracts with a duration of fewer than 30 days. If a company fails to put the employment contract in writing, the terms and conditions of the employment shall be presumed to be those claimed by the employee and a fine may be imposed on the company by the Labour Directorate. So, putting an employment agreement in writing actually protects the employer from this assumption.

The information, terms and conditions that must be included in an employment contract, as a minimum, are as follows:

  1. date and place of execution;
  2. nationality and date of birth of the employee;
  3. starting date;
  4. description of the services to be performed by the employee and the location or city where the services are to be performed;
  5. remuneration and time of payment;
  6. number of working hours and work schedule (unless the company has a shift system in place, in which case the company's internal regulations apply);
  7. duration (i.e., fixed term, subject to completion of a task, project-based or indefinite);
  8. any other terms and conditions agreed by the company and employee (e.g., non-compete or confidentiality obligation, or other similar covenants); and
  9. email addresses of the employer and the employee.

Fixed-term contracts are permissible. The duration of a fixed-term contract must not exceed one year, and may be renewed once, but the total duration, including the renewal, must not exceed one year. In the case of managers and employees with a professional or technical qualification from a higher education institution, a fixed-term contract may have a duration of up to two years.

Certain specific conditions may be modified unilaterally by the company under certain circumstances. The company may change the nature of the work to be performed, or the workplace, as long as the new tasks are similar to the old ones, the new workplace is in the same area or city, and the change is not to the detriment of the employee.

If extraordinary circumstances arise that affect a company's operations, the company may unilaterally amend the employees' work schedule, changing the starting or ending time of the working day by up to 60 minutes. In these cases, the company must give notice to the employees concerned at least 30 days in advance. Any employee affected by this type of modification may file a complaint with the Labour Directorate but must do so within 30 days of the modification or receipt of notice from the employer.

ii Probationary periods

Probationary periods are generally not allowed under Chilean law (except for workers providing domestic help). In general, probation is conducted by means of short, fixed-term contracts. It is customary to agree on an initial duration of two to three months after hiring, after which the company may terminate the employment relationship or convert it to an indefinite term.

Termination of employment before the agreed date may expose the company to full payment of the salaries that would have been accrued by the employee until the agreed end date.

iii Establishing a presence

A foreign company may hire employees and engage independent contractors who are not officially registered to carry out business activities in Chile. In this type of case, employees will be liable for withholding and paying their own taxes and social security contributions.

An independent contractor may create a permanent establishment (PE) of the company in Chile, for which the requirements will depend on the country in which the domicile of the company is located and whether that country has a double tax treaty in force with Chile. In general, contractors who act in Chile with the power to negotiate commercial terms and conditions and close contracts may trigger the risk of a taxable PE.

The consequences of setting up a PE are that all income generated and allocated to the PE will be subject to taxation and penalties in Chile.

Restrictive covenants

Restrictive covenants to be enforced during an employment relationship, such as non-compete and confidentiality agreements, are allowed as long as they are mutually agreed by the parties.

No specific legislation governs post-contractual restrictive covenants. However, Chilean courts and practice have recognised that post-contractual non-compete clauses are not prohibited under Chilean law and, in fact, may be valid under limited circumstances. These clauses are customary for people in strategic positions who handle confidential or sensitive information about the company.

The following requirements must be met:

  1. employee's explicit consent;
  2. a legitimate supporting reason to protect the business interests of the former employer (e.g., avoiding facilitation to direct competitors);
  3. a limited scope and time of effectiveness; and
  4. consideration (i.e., employees have to be compensated in return for the covenant).

Wages

i Working time

Working time should not exceed 10 hours a day and 45 hours per week. The 45 hours may be distributed across no more than six days and no fewer than five days a week. Employees subject to these limitations shall sign an attendance record or register in a punch card system. There are no limits for night work, except for child labour.

Some positions are exempted from the above limits to working hours:

  1. managers, administrators and representatives with administrative powers and those who work without direct supervision;
  2. employees hired to render services from their homes or another place freely determined by them;
  3. employees not carrying out services within the company's facilities;
  4. employees who render services on board fishing boats; and
  5. employees hired to render services outside the company's premises, using telecommunications means.

The Chilean Labour Code provides for daily rest periods, a midday meal (as part of a break for at least half an hour), a weekly rest day on Sundays and national holidays. Employees delivering services as part of continuous operations owing to technical requirements, and working in public shops or within the entertainment business and, therefore, required to work on Sundays and national holidays, shall be provided with rest days on different days.

ii Overtime

Overtime must be paid at a rate of 1.5 times the employee's regular hourly remuneration, on top of the regular salary.

Overtime is permitted for special or exceptional working schedules and only when it is essential to guarantee operational continuity. The maximum overtime permissible is two hours per day or 10 hours per week. This affects employees who are subject to a working hours limit. If employees complete their hours for a working week within five days, the sixth day may be used for overtime purposes, capped at 7.3 overtime hours. In any event, no more than 12 hours of overtime per week is permitted. Chilean labour law does not allow any agreement in respect of fixed overtime hours. Overtime must be agreed only in exceptional circumstances, through a special agreement that must state the reasons why overtime is necessary, and the period during which overtime may be worked shall not exceed 90 days.

All employees who are subject to specified working hours must register their start and end times each day. According to the law, the company must provide an attendance register, a punch card system or another system that allows employees to register their entry and exit times. Employees who do not have a specific working hours limit (work-time control) may not receive compensation for overtime.

Foreign workers

Employers are not required to keep a register of foreign workers. However, if a company has more than 25 employees, at least 85 per cent of the workforce must be Chilean nationals. Foreign technicians and foreign employees with a Chilean spouse or children do not count as foreign employees for this purpose. There is no restriction on the number of foreign employees that may be hired by companies hiring up to 25 employees.

All foreign employees must hold a visa or work permit, which may be granted subject to different criteria.

Foreign employees are subject to Chilean social security regulations unless they qualify for exemption. In other words, social security bilateral treaties allow for foreign professionals and technicians to be exempted from social security contributions in Chile and remain under their home country's social security system, provided the home country's social security covers events of disease, disability, retirement and death.

Global policies

Companies with 10 or more employees must have in place an internal order and a health and safety regulation. This is a mandatory document that is applicable to all employees. All the rules within the internal order and the health and safety regulation are considered part of employment contracts.

There is no need to obtain individual consent from employees in respect of the internal order or health and safety regulation, or approval from government authorities or a representative thereof. However, it is necessary to follow a notification process that involves publication of the draft in a visible place at the company for 30 days, to enable employees to be aware of it, and registration with the Ministry of Health, the Labour Directorate and the Ministry of Labour. A copy of the internal order and the health and safety regulation must be provided to all employees of the company.

As a minimum, the document must include the following:

  1. the start and end times of the working day and of each shift;
  2. the times of breaks during the working day;
  3. the different types of remuneration granted by the company;
  4. the place, day and time of payment of remuneration;
  5. the obligations and prohibitions to which the workers are subject;
  6. the designation of the executive or dependent positions of the establishment before whom the workers must raise their requests, claims, queries and suggestions. Companies with 200 or more employees must keep a register of all the different positions within the company, describing their essential technical requirements;
  7. any special rules applicable to different kinds of tasks, according to the age and gender of the workers, and to the necessary adjustments and support services that enable workers with a disability to carry out their work adequately;
  8. verification of compliance with social security regulations, compulsory military service, national identification and, in the case of minors, of having completed the obligatory level of schooling;
  9. the rules and instructions relating to health and safety prevention that should be observed within the company;
  10. the sanctions that may be applied for any infringement of the obligations set forth in the internal regulations, which may consist only of a verbal or written reprimand and a fine of up to 25 per cent of the daily remuneration;
  11. the procedure that must be followed in respect of the application of the sanctions referred to in point (j);
  12. the procedure, protective measures and sanctions that will be applicable in cases of complaints of sexual harassment; and
  13. the procedure governing the protection of equal remuneration for men and women who carry out the same work.

Parental leave

i Maternity leave

The general rule provides for fully paid maternity leave for six weeks before childbirth (pre-natal), 12 weeks after childbirth (post-natal) and 12 additional weeks (post-natal parental) after post-natal leave. The employee can extend post-natal parental leave up to 18 weeks (partial rest). During maternity leave, the working mother is entitled to a subsidy equivalent to her monthly remuneration, which is paid by the health insurance institution (Isapre/Fonasa); in other words, the employer is not obliged to pay the remuneration during this time.

Working mothers are entitled to the following mandatory leave:

  1. pre-natal maternity leave: from the 34th week of pregnancy (i.e., six weeks prior to the expected date of delivery); and
  2. post-natal maternity leave: 12 weeks after childbirth.

In addition to this mandatory leave, working mothers may choose between different types of additional parental leave:

  1. total leave: 12 weeks following the end of post-natal maternity leave (point (b) above). If the employee gives no notification to her employer, it will be assumed that this option has been selected;
  2. part-time leave: a working mother may choose to return to work part-time. In this case, the additional parental leave is 18 weeks following the end of post-natal maternity leave. To avail of this option, the employee must inform her employer at least 30 days in advance (by the end of her post-natal maternity leave) by means of a certified letter, and send a copy to the Labour Directorate; and
  3. transfer of leave to the father: a working mother may decide to transfer part of her additional parental leave to the father, subject to a maximum of six weeks full-time. If a working mother chooses the 18-week part-time additional parental leave, she may transfer a maximum of 12 weeks to the father.

The mother of a child who is less than two years old – or a father who is in charge of a child's tuition – is entitled to one hour of paid nursery leave per day. This right may be exercised in one of three ways: delaying the beginning of the working day; anticipating the end of the working day; or during the working day. A parent who is on paid nursery leave must not be subjected to discriminatory treatment.

Companies with 20 or more female employees must grant them a day-care benefit. Employees shall be entitled to the day-care benefit until a child reaches the age of two. This benefit may be transferred to the father or to a child's appointed custodian if the mother dies.

From the beginning of her pregnancy and until one year after the end of post-natal maternity leave, the company may terminate a mother's employment contract only with the prior authorisation of a labour court. This authorisation may be requested only if the employer wishes to terminate the contract within the period for which the employee was hired, or for any of the termination grounds set forth in Article 160 of the Labour Code (termination for cause).

ii Paternity leave

Fathers are entitled to five days of paid leave, which should be taken within the first month of the birth. The five days may be taken in whatever way the employee deems appropriate, either continuously or as separate days.

Translation

It is not a legal requirement for employment documents to be drafted in Spanish, but it is highly recommended because employment authorities usually require a translation for inspection purposes. Employers must be in a position to prove that an employee was able to understand a language other than Spanish if the employment documents are drafted in that other language.

Employee representation

All employees, regardless of their job, remuneration, seniority or any other circumstance, may form or join a union. No prior authorisation from a public authority is required to form a union. The required number of employees must be in line with specific formalities contemplated in the law, and varies depending on the total number of workers employed by the company.

Unions normally represent employees from a single company. Trade unions are not common in Chile and do not have the same rights as company unions (for instance, they may not force a company to enter into a collective bargaining process, whereas company unions can). Unions are entitled to represent employees in their claims and proposals to the employer and represent employees in a collective bargaining process. If the company and the union do not agree on the terms of the collective agreement in a formal bargaining process, the union is entitled to engage in a strike.

Certain employees may be excluded from collective bargaining (under Article 305 of the Labour Code), namely managers, sub managers, executives, agents and employees who have general managerial responsibilities.

Some employees engaged in union activities are protected with what the legal doctrine calls fuero. It protects some union members from without-cause termination of employment in certain circumstances.

Another type of representative body is a health and safety committee. Companies with 25 or more employees must have a health and safety committee, formed by three representatives of the employees and three representatives of the company, which shall adopt prevention measures to be proposed to the employer. Employers must register with the Labour Directorate the names of the three representatives of the employees and the three representatives of the company, and the minutes of the election of the three representatives of the employees.

Data protection

i Requirements for registration

Privacy has constitutional protection in Chile – Article 19, No. 4 assures every person 'the respect and protection of private life and honour of individuals and their families'. Moreover, even though courts now accept data privacy under that section of the Constitution, the protection of personal data was included as a constitutional right in an amendment5 that came into effect on 16 June 2018. The employer is obliged to maintain the confidentiality of all employees' information and private data that has been accessed during the employment relationship.

The term 'personal data'6 relates to any information concerning an identified or identifiable individual: anyone can process personal data as long as the owner of the data gives his or her consent, unless it has been collected from public sources.

There is no data protection agency in Chile, and companies do not need to register with any other government body. Employees have a right to obtain copies of any personal information that is held by their employer.

ii Cross-border data transfers

It is not necessary to obtain a licence or permit to collect or transfer personal data. Law No. 20,575 provides that anyone can process personal data, if it is authorised by law, or the data subject consents, unless the information has been collected from public sources. Prior to giving consent, the individual must be informed of the reason for the collection of data, and the eventual communication to the public or third parties, if that is the case.

No such authorisation or consent is necessary if the personal data is:

  1. economic, commercial, financial or banking information and has been originated or collected from public sources;
  2. contained in lists relating to a class of persons and is limited to indicating information such as the fact of belonging to a particular group, the person's profession or business activity, educational degrees, address or date of birth;
  3. necessary for direct response commercial communications or direct sale of goods and services; or
  4. processed by private legal entities for their exclusive use, or the exclusive use of their associates and affiliated entities, for statistical or rate-setting purposes or other purposes of general benefit to those private legal entities.

iii Sensitive data

There is a special category of personal data that refers to an individual's physical and moral characteristics, or facts or circumstances of private life or intimacy, such as personal habits, racial origin, ideologies and political opinions, religious beliefs or convictions, mental or physical health, and sexual life. These are considered to be sensitive data and there are more stringent rules regarding how they are dealt with. Sensitive data may not be processed except when authorised by the law, the subject data authorises it explicitly or it is necessary data for the determination or granting of health benefits for the subjects.

iv Background checks

Employers are entitled to carry out pre-employment checks, as long as they are justified as a legitimate occupational requirement for the position for which the applicant is being considered (e.g., criminal record checks are exceptionally allowed for positions that involve working with minors who have disabilities). Otherwise, the company's conduct may be found to be discriminatory or a violation of the right to a private life.

Discontinuing employment

i Dismissals

An employment agreement may only be terminated for the causes listed in the law. The dismissal letter must be delivered to the employee personally or by certified letter to the employee's domicile indicated in the employment contract. A copy must also be sent to the Labour Directorate.

Pregnant employees, employees who are on medical leave, employees who are union directors and the president of the company's health and safety committee are protected from dismissal.

Termination causes may be classified as either those that provide employees with a right to a severance payment or those that do not.

Causes for termination not providing a right to severance pay

This category is divided into two subgroups:

  1. when there is no fault on the part of the employee, namely:
    • agreement of the parties;
    • resignation of the employee;
    • death of the employee;
    • expiry of the term of a fixed-term employment agreement;
    • completion of the specific work or service for which the employee was hired; or
    • act of god or force majeure; and
  2. when the termination is a result of employee misconduct, namely:
    • lack of probity in carrying out duties, sexual harassment, physical aggression, harassment, inflicting injuries, or serious immoral behaviour that affects the company;
    • carrying out activities in the same line of business as the company;
    • unjustified absence for (1) two consecutive days or for two Mondays in a month or for a total of three days in a month, or (2) if the employee in question is in charge of an activity or machine whose abandonment or stoppage implies a serious disruption to the carrying out of the company's work;
    • abandonment of work by the employee, whether it be (1) an unjustified departure (without the company's permission) from the workplace during working hours or (2) refusal to perform the services set out in the employment agreement;
    • conduct affecting the safety or functioning of the business or the safe performance of work by other employees or the health of other employees;
    • wilful act of damage against the facilities, machinery, tools, products or goods of the company; or
    • a serious breach of the employee's obligations in the employment agreement.

Causes for termination providing a right to a severance payment

  1. Business necessities, namely those causes deriving from circumstances such as the company's modernisation or rationalisation, decreases in productivity, or changes in the economy or the market;
  2. termination by the employer with no need for justification, although this is only applicable to employees who are (1) entitled to represent the company (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 (2) within the confidence of the company; and
  3. company bankruptcy.

Mandatory compensation on termination of employment

Compensation in lieu of prior notice

This is applicable when the employment agreement is terminated for a cause that provides the right for an employee to receive a severance payment. The company must give notice of at least 30 calendar days to the employee, and send a copy thereof to the Labour Directorate. This advance notice may be waived if the company gives the employee a severance payment equivalent to one monthly remuneration, capped at UF90.7

Severance

This is applicable when the employment agreement is terminated for a cause that provides the right for an employee to receive a severance payment. If the employment agreement has been in force for more than one year, the employer must pay the severance agreed by the parties or, if no agreement exists, the statutory severance. The latter is equivalent to 30 days of remuneration for each year of service and fraction thereof greater than six months. The agreement regarding the severance may not be less than the statutory severance.

There are two caps for this type of severance: (1) the length of service may not exceed 11 years; and (2) the monthly remuneration may not exceed UF90 per month.

Pending or proportional vacation days

Laid-off employees are entitled to payment for any pending or proportional days of vacation regardless of the ground for termination of employment. The calculation of this payment takes account of the employee's full remuneration.

Employment release

This is a document that describes the payable compensation on termination. It must be available for signature and payment by the employer within 10 business days of the termination date. Usually this document serves as a waiver and release to prevent any future claims.

The employee's signature on the employment release must be verified before a notary public.

ii Redundancies

There is no provision for redundancy under Chilean labour law.

Transfer of business

Whenever there is a total or partial modification of ownership or possession of a company, or the sale of all or part of its assets, statutory regulations establish that employment and labour rights remain with the buyer, and all labour and social security rights transfer. Employees cannot be dismissed unless the business transfer causes a business need whereby the position held is eliminated or subject to relevant change.

Outlook

Chile continues to undergo a series of reforms that include a social agenda that may affect employment relationships in several ways. The most important reform that is currently under discussion is a reduction in the number of working hours from 45 to 40, without any reduction in salary, and the economic consequences for Chilean society. Other reforms, such as a pension reform and an increase in the minimum wage, are also being discussed.

Footnotes

1 Ignacio García is a partner, Fernando Villalobos is a partner and Soledad Cuevas is an attorney at Porzio Ríos García.

2 Constitution of Chile (Constitución Política de la República), Article 19, Section 16, Paragraph 2.

3 id.

4 ibid., at Article 19, Section 16, Paragraph 3.

5 See https://www.leychile.cl/Navegar?idNorma=242302 (in Spanish) (last accessed 23 December 2021).

6 See Law No. 20,575, https://www.leychile.cl/Navegar?idNorma=1037366&buscar=20575 (last accessed 23 December 2021).

7 The unidad de fomento [UF] is a non-monetary index that increases according to the rate of inflation. As at 20 December 2021, 1UF was equal to 30,936.94 Chilean pesos.

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