End of Employment in Chile

End of Employment Procedures & Guidelines in Chile

Termination procedure

Chile only recognizes at-will termination for directors, managers, assistant managers and those in positions of “exclusive confidence”. This means that employment can be terminated without a cause or justification. In all other circumstances, there must be a valid and fair reason for dismissal, and it must respect the notice period, as follows:

1. Mutual agreement
   1. It requires a document stating that the parties have reached an agreement for the employment termination. This letter must be signed and dated by the employer and the employee on the date of the termination.
   2. Additionally, the employer and the employee must agree and sign an agreement regarding severance pay within two weeks after the end of the employment.
2. Natural end of a fixed-term or project-basis contract
3. Company’s reorganization
   1. The most common type of dismissal in Chile, seen as “dismissal without a cause”. It requires a letter of notification to the employee by the company. In it, companies must reference the cause and indicate the effective date. The employee should either sign this letter in person at the office or receive it by certified mail to their home address.
   2. Another original letter must also be filed with the Chilean Labour Ministry (“Inspección de Trabajo”). It is somewhat standard to notify them on their last day, with immediate effect. Once they have notified the employee, employers should prepare the severance agreement (“finiquito”), where they outline the details of cause. They also should outline the amount of notice days, untaken vacation days, and severance pay. The employer and employee should sign this agreement at either at the Chilean Labour Ministry or at a notary, within ten days of notification.
4. Employee’s resignation
5. Employee’s death
6. Employee’s gross misconduct or breach of contract, which must be proven by the employer. The following are recognized types of misconduct of a serious nature, which must be duly proven by the employer:
   1. Lack of probity of the employee in the performance of their duties.
   2. Conduct of sexual harassment.
   3. Acts exercised by the employee against the employer or any other employee working in the same company.
   4. Insults made by the employee to the employer.
   5. Immoral conduct of the employee affecting the company where they work.
   6. Conduct of harassment at work.
   7. Negotiations carried out by the employee within the line of business and that have been prohibited in writing in the respective contract by the employer.
   8. Non-attendance of the employee at work without justified cause for two consecutive days, two Mondays in a month or a total of three days during the same period of time.
   9. Unjustified or unannounced absence on the part of the worker who is in charge of an activity, task, or machine whose abandonment or stoppage means a serious disturbance in the progress of the work.
7. Force majeure, such as a natural disaster

For terminations to be effective, the company must prepare a letter for the employee regarding the reason for the employment termination and the effective date. This letter must either be sent by certified mail to the employee’s home address or delivered and signed in person by the employee within three working days following the employee's dismissal. An original copy of the same letter must be filed with the Chilean Labour Ministry (Inspección de Trabajo) within three working days following the employee’s dismissal. It is common for employees to be notified on their last day of employment, with immediate effect.

Upon notification of termination, companies must also prepare a severance agreement (finiquito) stating the cause for dismissal and the amount of severance owned to the employee. Severance pay often includes the notice period (as terminations are often immediate), accrued but unused time off, and clauses to protect the confidentiality of information and intellectual property. This agreement should be signed within ten days of the end of employment by the employer and the employee in front of a notary public or the Chilean Labour Ministry.

Most companies pay in lieu of having the employee work their notice period. Once the employee is notified of their last day of employment, the company must de-register the employee with the authorities and make the final pay within ten working days. The final pay includes the notice period (if applicable), unused time off, severance (if applicable), any outstanding commission or wage.

Employers guilty of wrongful termination may be required to pay compensation in lieu of prior notice, severance, and a surcharge of severance for each year of service varying from 30% to 100% depending on the reason for dismissal plus the costs of the employee’s attorney. Employment contracts cannot be terminated if the company owes social security contributions. If the Court deems that the dismissal has violated the employee’s fundamental constitutional rights, the employer may be obliged to pay an additional fine equivalent to 6 to 11 monthly salaries.

Disciplinary procedure

Although not applicable in Chile, all misconduct situations by any employee must be immediately reported to the Labour Inspection in their web portal. Additionally, companies may choose to implement a warning and suspension section to their employee handbook, stating the conducts that are prohibited and possible tools to be used by the company in case of breach of rules, such as written notices, suspension, and even termination in serious and reiterated cases.

It is important to highlight that poor performance cannot be considered as a fault or as a breach of contract per se and is therefore subject to termination unless it implies material breach of specific obligations contained in the labour contract.

Resignation

Employees who would like to resign from their jobs must present their employers with a resignation letter and respect the 30-day notice requirement. There is no standard format for that letter, and the employee does not need to list the reason for their resignation, but they must indicate their last day of employment. Employees who resign are not entitled to severance pay.

Notice period

The statutory notice period is one month. However, it is common for companies to pay employee in lieu of having them work their notice.

Severance

Employees who have worked for their employers for a minimum of 12 months are entitled to severance pay equivalent of one month’s salary for every year of employment, capped at 11 years. Any partial year worked longer than six months is rounded up to a year for severance payment purposes.
Employees whose employment is terminated due to gross misconduct are not entitled to severance pay.

Redundancy

The same conditions as stated under Severance are applicable in cases of redundancy.

Employee termination protection

Employees cannot be dismissed during a period of illness, pregnancy, or leave (unless they commit a gross misconduct and are terminated with cause, or if the company goes through a reorganization). The president of the health and safety committee and union directors also enjoy additional protection.

Where an employee is covered by this special protection, the employer can terminate the employee’s contract only with the prior authorisation of a court.

Unemployment funds

The unemployment insurance in Chile is privatized and funded by mandatory contributions made monthly by employees. Employees are entitled to unemployment funds according to their individual savings account (ISA), backed by the public Solidarity Severance Fund (SSF).

To be eligible for the benefit, the employee must have made a minimum of 52 weeks’ worth of contributions or 12 months in the previous two years.