There are occasions in every company when there is a need to terminate an employee for a variety of reasons. Compared to Australia, there are some subtle differences in the way these are handled in Chile.
In Chile, it is important to bear in mind that you cannot simply terminate the employee-employer labour relationship.
If an employee is being inefficient or is not performing their duties up to the employer’s standards, it is not possible to fire or terminate the labour relationship, since these aforementioned reasons are not specified in the Chilean Labour Code.
There is a more generic cause provided in article 161 of the Chilean Labour Code which enables the company to terminate the employment contract based on the grounds of “…company, establishment or service requirements resulting from the rationalisation and upgrading thereof, decrease in productivity, changes in market conditions or the economy, that would require the removal of one or more employees”. If none of these factors have actually taken place and an employee that has been under contract for more than a year is fired on grounds pursuant with article 161, the company could be subject to pay a 30% increase in the employee’s severance pay.
Once an employment contract has been terminated and the proper severance pay has been paid, the employer and the employee sign a document (“finiquito”) that constitutes valid evidence that the labour relationship has been terminated.
This document is one main difference in the way terminations are handled in Australia compared to Chile. The ¨finiquito¨ is often one area that we need to explain to our clients who are not accustomed to using it. Simply put, the finiquito is a termination letter stating the grounds of termination and severance pay.
In order for this termination letter (“finiquito”) to effectively end the labour relationship, it has to be signed and ratified before an authenticating officer (Notary). In addition, the employer has to be up to date with the payment of all social security contributions (as well as other payments if necessary), and in certain cases the employer has to notify the employee that his employment contract will be terminated via certified mail.
Employment law in Chile is heavily regulated by the State, becoming a matter of public law in which the government sets a minimum standard and regulates the manner in which labour relationships are to commence and end.
In the future blogs, we will cover employee severance packages as there are some similarities with Australia and of course, some differences!
Please do not hesitate to contact Harris Gomez Group if you have questions regarding employment matters.
Written by Jorge Tuane