Labour Reform Law 20,940 was published in the Official Gazette on September 8 2016 and primarily concerns collective bargaining and the power of unions. A key issue introduced by the law was the elimination of the right of employers to hire replacement workers during labour strikes. The restriction on the use of replacement workers will have a paralysing effect on companies, as unions have seen their negotiating position strengthened. Further, there is no clear penalty for illegal strikes. These changes could damage the culture of dialogue in the context of industrial disputes.

Under the new law, the criteria that set the threshold for negotiations – eliminating productivity micromanagement – have been changed and medium and large-sized companies must now engage in negotiations effected by inter-company unions.

Before the reform, Chile had already fallen from 22nd to 35th place in the Word Economic Forum's competitiveness ranking and was considered to be one of the worst countries with regard to "the efficiency of the labour market" (at present, Chile is ranked 63rd out of 140 countries in that regard). The lowest-ranked countries at a global level in this labour market indicator are Argentina and Venezuela, which were often used as examples to follow during discussions on the Labour Reform Law.

The concrete effects of the law will be seen when it enters into force on April 1 2017.

The Labour Reform Law includes the following transitional rules:

  • Collective bargaining will be governed in full and for all legal purposes by the rules in force on the day of submission of the draft collective agreement. Therefore, all collective bargaining that begins before April 1 2017 will be governed by the existing Labour Code and not the Labour Reform Law.
  • Collective instruments signed by unions or negotiating groups before the law enters into force will remain in place until the date agreed.
  • Following the publication of the Labour Reform Law, companies and unions can designate by mutual agreement the minimum services and emergency equipment that must operate, even in the case of a strike. For collective bargaining processes that start within six months from the reform entering into force no agreement is required on the designation of minimum services and emergency equipment. Instead, employers must apply to the corresponding regional labour directorate for a formal description of what qualifies as minimum services and emergency equipment for their company.
  • The three-year term of validity for the authorisation of special working shifts will apply only to authorisations granted by the Labour Directorate as of April 1 2017. Prior authorisations will remain effective for four years or the shorter term specified in the respective authorisation.

For further information on this topic please contact Germán Segura at Montt y Cia SA by telephone (+56 22 233 8266) or email ([email protected]). The Montt y Cia SA website can be accessed at