Chile: 2023, Looking ahead
In 2023, Looking ahead, we explore the most important trends and developments related to labour and employment law in Chile.
In 2022, we were able to see that with greater control of the pandemic, thanks to advances in vaccination of the population, the workforce and employers were able to resume economic activities, the way of working and the activities of daily life with greater normality. However, the work habits acquired by people during the pandemic, particularly in relation to remote work, permeated the culture of organizations in a significant way, evolving in many cases into hybrid work models.
This transformation was made possible by the technological advances available at the onset of the pandemic, which not only gave a strong impetus to remote working, but also changed consumer behaviour, requiring companies to move towards automating processes and developing digital services. These changes naturally forced employers to restructure their human capital and orient it towards the new needs that were experienced.
On the other hand, in 2022 our process of constitutional change experienced important milestones marked by the delivery of the draft of the new constitution and its subsequent rejection in the exit plebiscite, which put pressure towards the end of the year on the government, congress and political forces to seek a new agreement on how the process will continue in 2023, an issue that will also undoubtedly mark the agenda of Chile for 2023.
Let us then review the outlook and trends in Chile’s labour market as this year begins.
Bills and economic trends that will shape employment
- Pension Reform
At the end of 2022, President Boric presented the pension reform bill that seeks to improve the social welfare system in Chile, highlighting three relevant axes: improving the amount of the “universal guaranteed pension”, the creation of Social Security based on a new contribution to be paid by employers, and the end of the AFP model through the reorganization of the industry. The reform involves a complete overhaul of the regulation and structure on which the Chilean pension system currently operates, with the main proposals including the creation of a new Integrated Pension Fund (FIP) that would be financed by the creation of an additional contribution of 6% of wages with a new and higher taxable ceiling that would be paid exclusively by the employer; the conversion of the AFPs into Private Pension Investors (IPP); the birth of the Autonomous Public Pension Investor (IPPA); and, the transformation of the Social Security Institute (IPS) into an Autonomous Pension Administrator (APA), among other relevant changes at the level of regulatory institutions and regulations related to the management and administration of investments.
There is no doubt that the passage of this project will take up a large part of this year’s legislative agenda due to the impact that its approval will have, as well as a project that will have an impact on the work scenario due to the higher cost of each job.
- 40-hour reform
As of August 2022, the discussion of the bill seeking to reduce the working day was resumed. This bill initially contained a single article proposing the reduction of working hours. However, with the presentation of indications by the current government, the content of the bill was expanded, and other matters are currently being discussed in addition to the reduction of the working day.
For example, the types of workers who may be excluded from the limitation of working hours are being reviewed; changes to the existing special working hours (such as those of drivers, domestic workers, hotel workers, etc.); the possibility of making it more flexible for workers to enter or leave work earlier or later, depending on their care needs; among other matters. There has been consensus on the deferred entry into force of the reduction of the working day: up to now, the 45 hours would be reduced to 44 in the first year, to 42 in the third year and to 40 hours in the fifth year, counting from the date of publication of the law. The rest of the articles are expected to be voted on during January and then the discussion will resume in March.
Given that the project addresses relevant and sensitive issues for employers and workers, we also expect that the evolution of this project will influence employment prospects, as well as the preparedness of employers to face the regulatory changes that will take place, which will pose important challenges in terms of work organization, particularly those that cannot be optimized under efficiency criteria and whose value lies in the assistance of the worker for a period of time.
- Immigration Challenges: Continued Implementation of the New Migration Law
During 2022, the implementation of the new Migration and Foreigners Law had great challenges, which will continue to occur in 2023, especially considering the high demand of applications received daily by the National Migration Service and the response time to such applications, which are often excessive. Furthermore, the new legislation completely digitalized a process that was traditionally physical, which is expected to be a major step forward in speeding-up processing and reducing the risk of loss or misplacement of documents that were previously sent by physical mail. It will be a great challenge for the authority to respond to users’ demands in an efficient and timely manner.
- Constitutional Change process
As mentioned in the introduction, Chile already faced a constitutional process after the Agreement for Peace and the New Constitution of 2019, which resulted in a rejected constitutional proposal. By the end of 2022, the main political parties with Congress representation announced an agreement for a new Constitution in Chile, called “Agreement for Chile”. This has been well received by the markets and business community.
The Agreement for Chile includes 12 constitutional bases that shall be contained in the new draft Constitution. In addition, the bodies that will participate in the drafting of the new proposal will be a Constitutional Council, an Expert Commission, and a Technical Committee on Admissibility. Finally, it establishes a constitutional itinerary, which will conclude with a ratifying plebiscite on November 23rd, 2023. Undoubtedly, the project’s guidelines will be relevant to employment prospects and to assess the changes it would bring about in labour relations if approved.
- Labour litigation: the hybrid model on the horizon
Due to the pandemic and long-standing mobility restrictions, Chile temporarily modified its justice system to deal with the situation. This allowed hearings to be conducted remotely for a period of one year, after which the courts have begun to resume their face-to-face activity, with hearings taking place on court premises. However, the law now provides that the court may authorize the remote appearance by videoconference of any of the parties’ lawyers who so request this. However, the confessions of the parties and the statements of experts, witnesses and other witness statements determined by the judge may only be given on court premises.
- Application of the law on work on digital platforms, aspects to be defined in case law
In September 2022, the Digital Platforms Labour Law came into force in Chile, which regulates this type of work, distinguishing that it can take place within a scheme of dependent or independent work. In October 2022, the Directorate of Labour issued an interpretative opinion of the Law, by virtue of which it is understood that this authority would have the power to define when there is a dependent or independent labour relationship, a matter that in Chile has been reserved exclusively for the courts of justice. The opinion pronounced itself regarding some elements that will be considered to determine whether there is dependent work, which has generated academic and judicial discussion on the point. In this way, the jurisprudence emanating from the courts regarding the interpretation of the law will be very relevant to determine the real scope of the new regulation, taking into consideration that digital platforms in Chile have been a great source of activity for an increasingly relevant volume of people who are joining every day.
Trends arising from technological developments
- Implementation of electronic labour registration & Data Privacy
In 2021, a law was passed to modernize the Labour Directorate, the government body in charge of overseeing labour relations in Chile. Among the changes introduced was the creation of the Electronic Labour Register, in which employers must provide a wide range of information related to their company’s workers, aspects related to trade unions, details of remuneration, people with disabilities, details of the attendance register, sanctions against workers, among others.
The implementation of this register has been in stages and it is expected that by mid-2023 significant progress will be made with a large amount of information that is confidential, which will create a challenge for both employers and the authority receiving the information, to digitalize processes and design sufficient and effective mechanisms to ensure the safeguarding of the information.
Trends in labor relations
- Digital nomads: delocalization of work
The new generations, both in Chile and around the world, have experienced in recent years the freedom of being able to work away from their employer’s premises, becoming unaccustomed to the traditional work scheme to which previous generations were accustomed, which had a time when this flexibility was not possible and the pandemic
ended up accelerating it. As a result, many professionals today have consolidated a nomadic lifestyle in which they travel the world professionally connected to their employer or whoever provides them with services. This flexibility also brings benefits for companies, as they have the opportunity to achieve global connections and incorporate talent from other countries, increasing their productivity and maintaining their operating costs.
However, this geographical flexibility is not so simple and presents challenges for organizations, as labour and tax law is often territorial and Chile is no exception. Telework and telecommuting have regulations regarding working hours, risk prevention measures, among others, that the employer must comply with and whose supervision is difficult to carry out from a distance. This year, it will be a challenge for professionals and employers to define the possible modalities, considering that there should no longer be a pandemic to support the exceptionality of the measure, as was initially the case in Chile.
- The Diversity and Inclusion Challenge Continues
Companies in Chile have taken on the challenge of incorporating diversity and inclusion (D&I) practices into their organizational policies, taking a qualitative leap in the past two years. These changes have been consistent with the legislation on labour inclusion that was published in 2020, but its content just came into effect last November. Under this new statute, employers with a headcount higher than 100 employees, must have, at least, one employee in their Human Resources Department, with training in matters promoting the inclusion of people with disabilities into the labour market. Additionally, the law mandates that employers are also required to elaborate and promote inclusion policies, which must be reported annually to the Department of Labor.
Those employers must also develop and implement annual training programs for their personnel, to provide them with tools for an effective labor inclusion within the company. Likewise, the new regulations contemplate that any training programs (either in or out of working hours) must ensure equal opportunities and social inclusion of people with disabilities. The trend observed in this matter is an important change in practices where companies are not only working to raise awareness and generate greater awareness but are advancing in developing more inclusive processes associated with talent management.
- The importance of managing the mental health of the workforce
The enormous impact of the pandemic on people’s mental health has made wellbeing in the workplace one of the most valued elements for workers. The degree of satisfaction, which measures how people feel at work, has become a fundamental metric for ensuring the well-being of workers and maintaining their commitment to the company. Given the increased importance of managing factors that affect workers’ mental health, at the end of 2022 the Ministry of Health updated the protocol that seeks to measure workers’ exposure to psychosocial risk factors. Although this protocol had already existed since 2013, the new changes reflect the experiences and lessons learned since its first implementation and include aspects aimed at measuring the impact of the health crisis in the world of work.
It also makes the prevention of psychosocial risks at work an obligation for employers, who must include in the company’s internal regulations the possible psychosocial risk factors in the workplace, the consequences for workers’ health and the protective measures.
Another innovation is that the employer must assess the psychosocial risk generated by their work and implement the necessary preventive actions aimed at reducing, controlling, mitigating and/or eliminating the effects of the findings of the assessment process. The new regulation also establishes that the assessment and management of preventive actions must also be carried out by the workers duly represented through a committee, so that the implementation of this regulation will involve the challenge of joint and coordinated work by the management of the companies together with their workers, so that they are all active monitors of the risk factors.
- Inflation and wages
It is a fact that inflation in Chile has outpaced nominal wage growth, which is evident from the evolution of real incomes. This phenomenon has not occurred for many years and means a loss of purchasing power for workers, so the inflation rate in Chile will be an element to monitor in 2023, as it could translate into more pressure on employers to increase wages, particularly those who must bargain collectively.