The termination of an employee in Chile is regulated by a set of laws and standards that protect both employees and employers. For this reason, ending an employment contract must be handled carefully, as improper termination can lead to legal penalties and complications for the employer.
In this article, we explain step-by-step how to properly terminate an employee in Chile in accordance with current regulations, and outline the aspects every employer should consider to comply with the law and protect their rights.
Legal grounds for termination in Chile
Articles 159 to 163 bis of the Chilean Labor Code outline various grounds for termination, which determine the obligations and rights of both the employee and the employer. The main grounds include:
- Business needs: This applies when a company faces economic issues or restructuring, though it must meet specific criteria.
- Misconduct and inappropriate behavior: This includes theft, fraud, or improper conduct that undermines the employer’s trust in the employee.
- Breach of contract: The employer may terminate the contract if the employee fails to meet agreed-upon obligations, such as consistent tardiness or poor performance.
To ensure the termination is considered legal, the reason must be documented and justified with Chile’s Labor Directorate, following the standards established by Chilean law.
Employee rights upon termination
Both the employer and the employee must be aware of the employee’s rights when termination occurs. Respecting these rights is essential to avoid claims or legal actions that could affect the organization’s operations and reputation. These rights include:
- Severance for years of service: In cases of termination due to business needs, the employer must pay severance equivalent to one month’s salary for each year worked.
- Proportional vacation pay: The employer must pay for any unused vacation days the employee has accrued.
- Final settlement document: This formalizes the end of the employment relationship and must be signed before a notary or labor inspector to be valid.
Formal procedure for termination
In Chile, a termination must follow certain formal procedures to be considered legal and valid. For example:
- Written notification: The employer must notify the employee of their termination in writing, with a letter detailing the reason. This letter should be delivered on the effective date of the contract’s termination.
- Notification to the labor directorate: At the same time, the employer must inform the Labor Directorate of the termination and submit a copy of the termination letter, including the date and reason for ending the contract. Additionally, the final settlement must be approved by both parties and formalized with the Labor Directorate or a notary.
- Payment of outstanding wages: Along with the notification, the employer must calculate and deliver outstanding payments, such as proportional vacation pay and days worked.
Recommendations for terminating an employee properly
To avoid legal issues when terminating an employee, it is advisable to follow these additional steps:
- Seek legal advice: Consulting a lawyer specialized in labor law can help assess the justification and proper procedures for termination.
- Document the process: Keep a detailed record of performance evaluations, warnings, or issues related to the employee. This documentation supports the termination if any claims arise.
- Respectful and transparent communication: Notify the employee clearly and respectfully, avoiding unnecessary conflict and facilitating a peaceful exit.
Following these recommendations not only ensures compliance with regulations but also contributes to maintaining a respectful and professional work environment.
How to handle termination due to poor performance: guidelines and considerations
For termination due to poor performance, the employer must follow several steps. First, it is recommended to conduct periodic performance evaluations and document them, giving the employee an opportunity to improve. If performance remains unsatisfactory, formal written warnings should be issued, specifying areas for improvement and expectations, with both parties signing off.
It is also advisable to offer training opportunities to help improve the employee’s performance, which reinforces the justification for termination if no improvement occurs. The employer must document the entire process, including evaluations and warnings, as support in case of a claim.
When notifying the termination, the poor performance should be detailed in a formal letter and delivered to the employee, ensuring their labor rights are respected. This documented, transparent process minimizes the risk of subsequent claims and ensures the termination is conducted in accordance with the law, maintaining respectful treatment.
Consequences of unjustified termination
In Chile, terminations that lack justification or do not comply with legal procedures can lead to various (legal, financial, and reputational) consequences for the company.
Some of the consequences of unjustified termination include:
- Additional Severance: If the termination is declared unjustified, the employer may be required to pay additional severance.
- Reinstatement: In some cases, the court may require the employee to be reinstated, especially if the termination is declared null.
- Fines for Non-Compliance: The Labor Directorate may impose financial penalties if it is shown that the employer did not comply with procedures.
On the other hand, a properly conducted termination protects the employer from these consequences and ensures that the employee’s rights are respected.
Need advice on conducting a proper termination?
Contact Becker Abogados. Our team of labor law specialists is here to guide you through the termination process, ensuring that all legal requirements are met to protect the rights and interests of both your company and the employee.
