Termination of working Contracts

Working contracts in Chile have to be terminated in compliance with a legal cause that is established in the Labour Code.

Termination Causes

The causes for termination of an employment contract are contained in Articles 159, 160, 161 and 163 bis of the Labor Code, and they are as follows:

Article 159 causes:

1. Mutual agreement between the parties.

2. Resignation of the worker, with at least thirty days' notice to the employer.

3. Death of the worker.

4. Expiration of the term agreed upon in the contract.

5. Conclusion of the work or service that gave rise to the contract.

6. Act of God or force majeure, meaning a situation beyond the control of the parties and not preventable, such as an earthquake, fire, or flood that destroys the company's premises.

Article 160 causes:

1. Some serious misconduct, properly proven, as follows: a) Lack of integrity of the worker in the performance of their duties; b) Sexual harassment; c) Physical assaults by the worker against the employer or any other worker employed in the same company; d) Insults made by the worker to the employer; e) Immoral conduct by the worker affecting the company where they work; f) Workplace harassment.

2. Transactions carried out by the worker within the scope of the business and prohibited in writing in the respective contract by the employer.

3. Failure of the worker to show up for work without just cause for two consecutive days, two Mondays in the month, or a total of three days in the same period of time; and unjustified or unannounced absence by the worker who is responsible for an activity, task, or machine whose abandonment or stoppage results in serious disruption in the progress of the work.

4. Abandonment of work by the worker, which is defined as

   1. the untimely and unjustified departure of the worker from the work site and during working hours without the permission of the employer or representative, and

   2. the refusal to work without just cause for the tasks agreed upon in the contract.

5. Reckless acts, omissions, or imprudence affecting the security or operation of the establishment, the safety or activity of the workers, or their health.

6. Intentional material damage to the facilities, machinery, tools, work materials, products, or goods.

7. Serious breach of the obligations imposed by the contract.

Article 161 causes:

The employer may terminate the contract by invoking as the cause the needs of the company, establishment, or service, such as those derived from rationalization or modernization, decreases in productivity, changes in market or economic conditions that make the separation of one or more workers necessary.

In the case of workers who have the power to represent the employer, such as managers, sub-managers, agents, or attorneys-in-fact, provided that they have at least general administrative powers, and in the case of domestic workers, the contract may also be terminated by written eviction from the employer. This rule also applies to positions or jobs of exclusive trust of the employer, whose nature as such arises from the nature of the positions.

Indemnifications upon termination of working contract

The Code of Labor Laws in Chile outlines the employer's responsibility to provide severance payments to an employee terminated due to company needs, such as economic constraints.

This includes a severance payment in lieu of notice of one month's salary (up to UF 90), and a seniority-based severance payment of one month's salary per year of employment, up to a limit of 11 years and UF 90 per month.

The employer and employee can agree to higher payments.

To end a contract, the employer must cite a legal cause in the Code of Labor Laws and the contract cannot include invalid causes.

If the cause is deemed unjustified, the severance payment may increase up to 100%.

The severance payments must be made in full within 10 business days via a settlement agreement and if not paid, the employee can sue the employer.

For executives or high management positions, written dismissal by the employer is the legal cause, and all other legal payments still apply.

Legal or collective severance payments are tax-free for the employee and deductible for the employer, while voluntary severance payments are taxed based on a specific formula.

The labor courts can also order the withholding of the employer's tax returns to ensure the employee receives the proper severance payments.