Chile: Definition Of Main Company In Subcontracting Services Scheme

Joint and several liability under a subcontracting of services scheme requires the main company (or client) to respond for any labor and social security debts incurred by its contractors or subcontractors with their employees. This liability entitles the employee to be paid either by the direct employer or the client, indistinctly. To avoid such liability (becoming a simple subsidiary responsibility), the main company must require evidence of payment of remunerations and social security contributions by the contractor on a permanent basis.

On 12 October 2021, the Chilean Supreme Court rejected a legal action seeking to reverse a ruling declaring joint liability of the main company and ordered severance and other outstanding payments.

In this case, the Court declared that both defendant companies entered into a construction contract with the plaintiffs’ employer (contractor). Under said agreement, the contractor undertook the task to build houses. Furthermore, the client undertook the services´ coordination. Also the main company was able to replace the appointed technical inspector, authorize modifications to the contract, control the state of progress and charge fines in the event of delays.

The Supreme Court ruling concluded that for purposes of a subcontracting modality, the main company can be not only the owner of the site, but also the entity that has a relevant level of control over the contractor, i.e. supervising and guiding the ways in which the contract is executed and the services are being provided. Therefore, both entities were considered as joint and several liable face to the employee of the contractor.

Key Action Points for Human Resources and In-house Counsel

• Joint and several liability of the main contract face to employees devoted by contractor to provide the services.
• More than one entity can be considered as main company for purposes of responsibility in a scheme of work involving contractors.