Termination of employment

Grounds for termination

May an employer dismiss an employee for any reason or must there be ‘cause’? How is cause defined under the applicable statute or regulation?

The employer cannot dismiss an employee for any reason, but on the contrary, he or she must substantiate the decision. According to article 161 of the Labour Code, labour agreements may be terminated by the employer on the grounds of ‘company needs’, such as those resulting from rationalisation or modernisation, low production, changes in market conditions or in the economy, or any other reasonable business reason.

Only in the case of employees that have the power to represent their employer, such as managers, assistant managers, agents or attorneys-at-law who have been granted general powers of management, may the employment contract be terminated without invoking any cause.

Notice

Must notice of termination be given prior to dismissal? May an employer provide pay in lieu of notice?

If the employment relationship ended on the grounds of company needs as stipulated in article 161 of the Labour Code, the employer must send a written communication to the employee informing him or her of the termination of the labour contract, one month in advance, unless the employer agrees to pay the employee a compensation equivalent to 30 days of work, which is referred to as compensation in lieu of notice. It is important to mention that according to article 172 of the Labour Code (final paragraph), this compensation has a legal cap: the amount of the remuneration for this purpose may not exceed 90 inflation-indexed units (UFs).

In which circumstances may an employer dismiss an employee without notice or payment in lieu of notice?

The employer may dismiss an employee without notice or compensation in lieu of notice, if he or she invokes one of the circumstances set forth in article 160 of the Labour Code, which include gross misbehaviour or dishonesty, as well as other material breaches of the contract as follows:

  • any undue conduct of a serious nature, duly evidenced as follows:
    • dishonesty of the employee in the performance of his or her duties;
    • sexual harassment or labour harassment;
    • employment harassment;
    • physical assault by an employee of the employer or any co-worker;
    • insults by the employee to the employer; or
    • immoral conduct of the employee that affects the company for which he or she works;
      • negotiations made by the worker within the company’s business activity that were prohibited in writing in the labour contract by the employer;
      • the employee’s absence from his or her duties without justification for two consecutive days, two Mondays within a month or a total of three days during an equal period of time, as well as unjustified absences or absences without previous notice by a worker in charge of an activity, task or machine whose abandonment or stoppage constitutes a serious disturbance in the advancement of the work;
      • desertion of work on the part of the employee: the employee abruptly and unjustifiably leaves the workplace during working hours without the permission of the employer or whoever represents him or her; or the refusal to work without justifiable cause in the workplace agreed upon in the employment contract;
      • acts, omissions or gross negligence that affect the safety or the operation of the facilities, the safety or the activity of the workers or the health of these;
      • material harm intentionally caused to the facilities, machinery, tools, work accessories, products or goods; and
      • serious non-compliance of the obligations undertaken in the employment contract.
Severance pay

Is there any legislation establishing the right to severance pay upon termination of employment? How is severance pay calculated?

If the labour relationship is terminated based on the company’s needs or on those circumstances in which no cause is required (article 161 of the Labour Code), the employer must pay severance payments.

The general rule in Chile is the payment of severance pay that was contractually agreed upon. If there is no agreement on this matter or if the agreed amount is lower than the legal severance pay, the legal severance must be paid.

The legal severance pay is an amount equal to one month of salary for each year worked, with the following limitations: it may not exceed 11 months; that is, 11 years of rendered services; and the amount of the remuneration for this purpose may not exceed 90 UFs. The first limitation is not applicable in the case of employees hired before 14 August 1981.

The aforementioned rule is applicable in the case of contracts with an indefinite duration.

For the purposes of compensation payment for termination of contract, the employer must consider whatever sum the worker may be receiving on the date of termination of the labour, including social security contributions, bonuses or any items valued in money, excluding benefits the employee may receive occasionally.

Notwithstanding the foregoing, the two limitations that apply to the calculation based on the compensation for years worked may be voluntarily waived by the parties, either in the labour contract or in any other documents, such as in a contract or collective agreement.

Procedure

Are there any procedural requirements for dismissing an employee?

The employer must prepare a termination letter and then deliver it personally or by certified mail sent to the employee’s domicile (the domicile indicated in the employment agreement). The employer must indicate in such notice the grounds invoked and the facts these are founded upon. The employer is also required to enclose with the termination letter the relevant social security contributions receipts.

The communication must be delivered or sent within three working days of the effective termination. A copy of such communication must be sent to the labour inspectorate within the same term.

Prior approval by the government agency is not required by law.

Employee protections

In what circumstances are employees protected from dismissal?

Employees who have immunity from dismissal are employees who enjoy some privileges and may be dismissed only by a court order based on specific enumerated legal grounds. The following employees enjoy immunity from dismissal:

  • female employees who are pregnant are protected under the relevant privileges against dismissal for the length of their pregnancy and for one full year following the expiry of maternity leave (article 174 of the Labour Code). Maternity leave starts six weeks prior to the birth of the child and continues 12 weeks thereafter;
  • male employees if they have taken parental leave according to articles 197-bis and 201 of the Labour Code;
    • labour union members are protected from dismissal under ‘immunity privilege’ in the following cases:
      • employees joining to constitute a union: from 10 days prior to constitution of the union to 30 days after constitution;
      • candidates for a union director position: from the time the election date is set until the election is completed with a maximum period of 15 days;
      • union directors and directors of federations, confederations and workers’ centres: during their term of office and for six months thereafter; and
      • employees involved in collective bargaining: for a period starting 10 days before bargaining and ending 30 days after bargaining;
  • staff delegates: during the term of office and for six months thereafter;
  • one of the employee members of the health and safety parity committee: until the end of his or her duties as the employees’ representative on this committee;
  • any employee whose child, spouse or civil partner dies is protected against dismissal under the relevant privileges for one month after the death;
  • any employee whose wife dies in childbirth or during her maternity leave is entitled to the same privileges applicable to pregnant female employees; and
  • those in military service: employees performing duties in the military, including those who are part of mobilised national reserve forces and employees who have been called for combat duty, are protected against dismissal without cause while performing their military service and for one month thereafter (or for up to four months if they become ill or disabled during military service).
Mass terminations and collective dismissals

Are there special rules for mass terminations or collective dismissals?

There are no special rules for mass terminations or collective dismissals.

Class and collective actions

Are class or collective actions allowed or may employees only assert labour and employment claims on an individual basis?

Class or collective actions are not specifically regulated under Chilean labour law. Notwithstanding the above, a group of employees claiming together against the same employer can file any action provided under the labour law to request the same labour entitlements. In addition, a union representing affiliated employees may file labour claims on their behalf against the employer.

Mandatory retirement age

Does the law in your jurisdiction allow employers to impose a mandatory retirement age? If so, at what age and under what limitations?

Chilean law does not allow employers to impose a mandatory retirement age. Notwithstanding the above, according to Law Decree No. 3,500, men can retire at the age of 65, and women at the age of 60.