In Chile, labor law mandates a minimum notice period for employers terminating employment contracts. The standard notice period is one month. This applies to terminations initiated by the employer due to business needs or termination at will. During the notice period, the employee is obligated to continue working their assigned duties unless mutually agreed otherwise.

Alternatives to Notice Period

The employer has two options in lieu of providing the one-month notice period:

1. Payment in Lieu of Notice: The employer can financially compensate the employee for the unworked notice period. This compensation amount cannot exceed 90 Unidades de Fomento (UF), an inflation-adjusted unit established by the Chilean government.
2. Mutual Agreement: Both employer and employee can agree to waive the notice period entirely.

It's important to note that these alternatives solely apply to employer-initiated terminations. Employees resigning from their positions are still required to fulfill the one-month notice period or find a suitable replacement unless the employer agrees to waive it.

Exceptions to Notice Period

There are limited exceptions where the employer is not obligated to provide notice:

• Serious Employee Misconduct: If the employee engages in severe misconduct, dishonesty, or actions causing significant harm to the company, immediate termination without notice may be justified.
• Fixed-Term Contracts: Upon the expiry of a fixed-term contract, no notice period is necessary.

Severance pay in Chile, known as indemnización por años de servicio, is a compensation that employers are required to provide to employees under certain circumstances when their employment contract is terminated.

Eligibility

Employees are generally eligible for severance pay if they have worked for their employer for at least one year. Severance pay is typically due when the termination is initiated by the employer for reasons such as company needs, restructuring, or termination at will. However, employees may not be entitled to severance pay if they are terminated for gross misconduct or other legally justifiable reasons.

Calculation

Severance pay is calculated based on one month's salary for each year of service with the same employer. Any period over six months is rounded up to a full year for severance calculation. The maximum entitlement is capped at 11 years of service, equivalent to 11 months' salary. There's a legal limit on the monthly salary used in the calculation, currently 90 Unidades de Fomento (UF – a Chilean inflation-adjusted unit of account).

Additional Considerations

If an employer unfairly dismisses an employee, they may be liable for surcharges on top of severance pay. These surcharges can range from 30%-100% depending on the reason for termination. Employers and employees can also negotiate severance packages that may exceed the statutory minimums.

Legal Sources

The primary legal sources governing severance pay in Chile are the Chilean Labor Code (Código del Trabajo), specifically Articles 159, 162, 163, and 172, and the Chilean Social Security Law (Ley de Seguridad Social).

Termination of employment in Chile must adhere to the guidelines provided in the Chilean Labor Code to ensure both employer and employee rights are protected.

Types of Termination

There are several ways in which an employment contract can be terminated:

• Mutual Agreement: Employer and employee jointly agree to end the employment relationship. This should be documented in a written agreement signed by both parties.
• Resignation: The employee chooses to end the contract. A written resignation letter is required.
• Expiration of a Fixed-Term Contract: If the contract had a specific end date, it terminates automatically upon that date.
• Completion of Specific Work or Services: If hired for a specific project or task, the contract terminates once the work is done.
• Death of the Employee: The contract ends automatically.
• Force Majeure: Unforeseeable or unavoidable events beyond anyone's control may lead to contract termination.
• Termination by the Employer: The employer initiates the termination. This must be supported by legally valid reasons.

Employer-Initiated Termination

Valid reasons for employer-initiated terminations include:

• Business Needs: Economic circumstances, restructuring, or changes in the company's operations.
• Employee's Conduct: Breach of contract, serious misconduct, etc.
• Termination at Will: The employer can terminate the employee without specifying a reason.

Termination Procedure

The termination procedure involves several steps:

1. Termination Notice: The employer must provide a written termination notice stating the legal reason and the specific facts supporting that reason. This notice must be delivered directly to the employee or sent by certified mail.
2. Notice to Labor Authorities: A copy of the termination notice must be sent to the Labor Directorate.
3. Final Settlement: A written agreement between the employer and employee detailing all outstanding payments and terms of separation, which must be signed and notarized.

Important Considerations

• Unfair Dismissal: If a termination was not based on legal grounds, an employee may challenge it in labor court.
• Legal Counsel: It's advisable for both employers and employees to seek advice from a Chilean labor lawyer to navigate the complexities of the termination process and ensure compliance with all legal requirements.