Some considerations about Chilean Labor Law
The Chilean labor law has to be considered when hiring the staff that will provide their services in Chile. If a Chilean company hires someone, the labor contract must be written in Spanish. There is no problem with having an English version when the parties are more familiarized with such language. However, the official version will be the Spanish version.
Under the Chilean Labor Law a company can hire a worker for an indefinite period as a permanent position, for a limited period that cannot exceed the 2 years or for a certain project.
Usually, foreign contracts contain provisions about being able to dismiss an employee if his ill for a certain period. In Chile in accordance with article 160 of the Labour Code (Chilean Labor Law), a worker cannot be dismissed during the period his ill, unless he has committed some of the actions that allow the employer to dismiss him without any compensation.
These contracts also contain provisions about allowing the employer to make any kind of deductions of the wages. Article 58 of the Labor Code (Chilean Labor Law) states which deductions can be made from the salary. If the amount to be deducted is not one of the cases listed in that article, then the maximum amount that can be deducted is 15%. If the employer gave the employee a loan, he can deduct the total amount still due to the compensation.
If an employee has taken more holidays than he was entitled to, these holidays cannot be deducted from his compensation. Workers are entitled to take holidays only after they have worked for a year for their employer. The employer may allow them to take holidays during the first year, but he is not obliged to. To take holidays after the first year, workers need employer’s permission (which cannot be unreasonable upheld). Therefore, because the employer allowed the worker to take more holidays than he was entitled to, these days cannot be deducted from the compensation the worker is entitled to.
In case an employee has accrued the right to take holidays of two consecutive years before he accrues the right for the third period he must take at least the holidays he is entitled to for the first year.
The way the untaken days of holidays that are to be paid by the employer if he dismisses someone is calculated as follows:
- 25: 12 = 2.08 (days of holidays for each month worked)
- 2.08: 30 = 0.069 (days of holidays for each day worked)
- For example: 2.08 x 8 months = 17 days
- 0,069 x 18 days= 1.3 days
- Total amount of days = 18.3 days
- The 18.3 days should be counted following the day the employee was fired (from Monday to Friday)
- In addition, the Saturdays, Sundays and other national holidays within the 18.3 days should be included. This will give the total amount to be paid for non-taken holidays.
In accordance with the Chilean labor law, overtime has to be paid together with the respective salary, e.g. September overtime is paid with the September salary. And between each salary payment, it should not take longer than 30 days (31 days in the respective months).
However, you are not obliged to pay on the last day of the month, e.g. September 30, or the first day of the next month, e.g. or October, 1st.
You can adjust maybe the payment to the 5th or 10th day of the next month and you will have the required time to be able to collect all the information about the extra hours.
Another issue to be taken into account is that the Chilean Labour Code established a list of motives allowing the employer to dismiss an employee. There are some circumstances or actions of the employee that allows the employer to dismiss the worker without paying any compensation (such as not showing to work for a certain period, stealing, etc.). The employer is allowed to dismiss employees for the companies necessities i.e. company running badly or in need to be restructured (it can also be only the department or position of the worker, e.g. needing someone who speaks a foreign language). In case of CEOs, they can be dismissed without naming any reason, but they are also entitled to severance payment.
Therefore, being a bad worker is not a legal reason to dismiss someone in Chile. In the work contract, certain specifics tasks or behaviors can be included, which if the worker does not fulfill them will allow the employer to dismiss him without any compensation. Such tasks or behaviors should be relevant for the kind of work the employee is performing (e.g. salesperson visiting at least a minimum number of clients per month). Being ill or in bankruptcy are not legal motives to dismiss someone. During illness is usually the health insurance the one paying the salary (there is a limit for high wages).
In the case of resigning as the Director, it is not a legal reason to dismiss a CEO, because usually, the Board of Directors’ duty is to make sure that CEO is doing his job properly, therefore it cannot be a natural task of a CEO to be member of the Board of his own company. This clause can be only applicable if he is the CEO of a holding company and in order to make sure that the subsidiaries are run by their respective CEOs properly he has to be a member of the Board of the subsidiaries.
In Chile, if someone is entitled to receive a compensation for being dismissed the employer has two options, either give him the person a notice and the employee will have to work properly until the period of notice is due or to make the person leave the company right away and pay him the period of notice. What cannot be done under any circumstances is to have someone at the office and not giving him work to perform the duties he is supposed to under his work contract, because the employer will not be performing his duties (i.e. paying the salary and giving work to do) and can be suited for that reason.
In case the worker finds a new job during that period he could resign and not received any compensation. However, he starts a new job even the day after the period of notice is due or he had to leave the company and the period of notice was supposed to be paid, he is fully entitled to his compensation and the salary for the period of notice and no reimbursement or deduction shall be made.
Provisions in labor contracts containing penalties to be paid by the employee to the employer are considered illegal. The companies can have some code of conduct and if this code is not upheld by some worker they can pay a fine, which amount is limited by the law. However, this money is not for the company but for performing actions or buying stuff that will be useful for the whole workers of the companies (e.g. organize a party).
If the company wants to receive some compensation for damages caused by an employee, she has to sue him at a Civil Court. Being that said, it has to be also pointed out that Courts are very reluctant to order workers to pay compensation to companies unless there is a felony or crime involved.
In Chile, no employer can oblige a worker to give private information about his health. An employer can ask for a health certificate stating that the person is capable of performing the duties he will be hired for, but can not ask for details. In regard to emails, the employer has no right to monitor or record the employer’s communications. They can agree that the employee has to send him a copy of every mail sent or inform him about his daily phone or conference calls.
Employees in Chile are entitled to some part of the profits of the company, the so-called “gratificaciones”. There 2 ways to pay it, either 30% of the company’s profit is distributed among the employees or the employer pays a fixed amount of 25% of the salary with a cap of about USD1910 per year. The employer is free to choose which system suits him better.
All changes to the work contract need the signatures of the worker.
Last modified: 06/05/2020