Chile: Santiago Court of Appeals Validates Employer’s Deduction of Unemployment Insurance Contribution in the Case of Unjustified Dismissal

Chilean law provides that the employer’s contribution to unemployment insurance can be deducted from the severance for years of service to which an employee is entitled when he/she is dismissed without cause.

However, in recent years, the rulings of the Supreme Court and other courts have indicated that such discounts are illegal in the event that the dismissal without cause is declared unjustified.

Yet, in a recent ruling (case number: 3478-2023) dated 2 October 2024, the Court of Appeals of Santiago validated the deduction of the employer’s contribution to the unemployment insurance from the severance for years of service.

Among other considerations, the ruling of the Court of Appeals points out the following to be highlighted:

• The unemployment insurance seeks a balance between the satisfaction of the needs of the dismissed employee when the reason for termination does not entitle him/her to severance (dismissal with cause) and the economic burden that the dismissal may represent for an employer when the reason for termination entails the payment of severance (dismissal without cause).
• The declaration of dismissal without cause as unjustified only brings as a consequence the one provided by law, that is, the application of the 30% increase on the severance for years of service.

It should be noted that this ruling is in addition to other recent rulings of the Santiago Court of Appeals that have adopted the same interpretation, so there is definitively a trend on the matter.