Chile: Considerations about Termination of Employment Contract

Over the last years, it has been discussed in Chile, how an employer can terminate an employment contract due to business grounds.

Trust positions (i.e. managers or employees entitled to broadly act on behalf of the company) can be terminated without invoking business needs. A written eviction is enough.

Regarding staff positions, employers are allowed to terminate the employment contract provided that the termination letter describes the economic or business need that grounds the termination. As an example, the Labour Statute refers to “modernisation, rationalisation, productivity diminution, new market conditions.”

Lately, case law has become more and more restrictive to accept business needs as a ground of termination. A very recent decision issued by the Santiago 1st Labour Court (File 1277-20) set forth that a labour contract termination must be grounded on objective facts that impose on the employer, an effective need to dismiss an employee, stating that it is not acceptable as a need, just to look for maximising the company´s profits.

Key Action Points for Human Resources and In-house Counsel 

This decision shows that companies must be more and more careful when grounding business needs to terminate an employee.