CHILE Law and Practice Contributed by: Constanza Contreras, Gabriela Muñoz and Juan Francisco Reyes, SCR Abogados
contracts of the employees covered. These terms generally continue to apply even after the expiration of the collective instrument, with some exceptions. An individual employment contract may not stipulate remuneration or benefits inferior to those established in any applicable collective contract, agreement or award. Collective instruments may not do the following: • waive or amend employees’ statutory minimum rights; • include clauses that require union membership as a condition of employment; • mandate union affiliation by non-members within a certain period after hire; or • limit the hiring of non-union members. Application of collectively negotiated benefits to non- union employees who participated in the bargaining process requires: • the union’s consent; • the employee’s express acceptance; and • the payment of all or part of the union’s standard monthly membership dues during the application of the collective benefits. The employer is responsible for deducting such pay - ments from the employee’s wages and remitting them to the relevant union. Under Chilean labour legislation, employment con - tracts may be terminated solely on grounds expressly established by law, all of which must be duly justi - fied. A key legal distinction exists between termina - tion grounds that entitle the employee to severance compensation and those that do not. Employees are not entitled to severance compensa - tion when their dismissal is based on just cause, such as serious misconduct or material breach of contrac - tual obligations. Likewise, no compensation is due 7. Termination 7.1 Grounds for Termination
when termination occurs for reasons not attributable to the employee, including: • mutual agreement between the parties; • resignation by the employee; • death of the employee; • expiration of a fixed-term contract; • completion of a task-specific or service-specific contract; or • events constituting force majeure or acts of God. It should be noted that, for legal purposes, the expira - tion of fixed-term or task-specific contracts, as well as termination due to force majeure, are deemed ter - minations initiated by the employer. Only three termination scenarios give rise to sever - ance compensation, all involving employer-initiated dismissal: • business needs (operational or economic grounds) – typically understood as redundancy; • termination at will – without cause, applicable only to specific categories of employees such as execu - tives and senior managerial personnel; and • employer bankruptcy. In these cases, employees with at least one year of continuous service are entitled to legal severance pay – unless a superior contractual severance amount has been agreed. The statutory severance is calculated at the rate of 30 days of the employee’s last monthly remuneration per year of service, including any frac - tion exceeding six months. This severance is subject to the following statutory caps: • a monthly salary cap of 90 Unidades de Fomento (UF); and • a maximum of 11 years of service (equivalent to 330 days of severance pay) (this seniority cap does not apply to employees hired before 14 August 1981). When severance compensation is owed, the employer must either provide advance notice of dismissal – of at least 30 days – or pay in lieu thereof. However, such notice is not required in cases where termina - tion is based on just cause or upon completion of
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