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April 14, 2020
2020-0978

Chilean labor legislation amended due to COVID-19 pandemic

Chile enacted employment measures allowing companies to suspend employment contracts or negotiate reduced work schedules with their employees. If an employment contract is suspended, employees will be eligible for unemployment insurance. During the suspension, companies will have to continue paying social security contributions. Chile also enacted a law that allows employees to work remotely.

On April 6, 2020, Chile enacted employment measures to mitigate the spread of COVID-19. On April 2, 2020, Chile also enacted the Remote Work Law, after months of discussion, which was accelerated with the COVID-19 pandemic.

Employment measures

The employment measures consist of allowing the suspension of employment contracts and reduced work schedules.

If the Government enacts a mandatory quarantine, curfew or other restrictions that make it impossible for a company to conduct its activities and its employees cannot perform their services, a mandatory employment suspension will be triggered. While the suspension is in place, the company does not have to pay remuneration to its employees.

Companies that are not completely locked down as result of Government-imposed restrictions but are still impacted by the COVID-19 situation may agree to suspend their employment contracts. Like companies that are completely locked down, these companies will not have to pay remuneration to their employees or pay for benefits, and the employees will not have to provide services.

Under the new law, if an employment contract is suspended:

  • Remuneration for the unpaid periods will be partially covered by unemployment insurance
  • Companies must continue paying social security contributions, including the employee portion, with the exception of work accident and disease insurance coverage

Companies may negotiate reduced work schedules with their employees and a proportional decrease in remuneration if they are: (i) subject to VAT and have decreased sales of more than 20% in three months, ii) under an insolvency procedure (i.e., a restructuring under the bankruptcy procedure), or iii) excluded from the lockdown but still need to reduce working hours to continue functioning. The law caps reduced work schedules at 50% of the standard work schedule (and thus 50% of the remuneration), and the reduced work schedule may be in effect for up to five months. Loss of remuneration would be partially covered by unemployment insurance.

Remote Work Law

In general terms, the Remote Work Law defines remote work as the provision of services totally or partially from home or any other place different from the company's premises, and work provided or reported from those different places through technological tools. Remote work may be subject to the regular working hours rules, but the new law allows the parties to agree to more flexible schedules or agree to an exemption from working hour limits with workers being entitled to 12 hours of uninterrupted rest daily, among other benefits.

The parties must agree to remote work as part of the employment contract or annexes that include special clauses established by law. The employer should provide the tools required to conduct the services remotely and cover the cost of the operational expenses incurred from performing the services. Employers must inform remote workers about the appropriate work environment for health and safety purposes, and the Chilean Government must issue a safety and health regulation for this mode of work.

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Contact Information
For additional information concerning this Alert, please contact:
 
EY Chile, Santiago
   • Victor Fenner (victor.fenner@cl.ey.com)
   • Janice Stein (Janice.stein@cl.ey.com)
   • Juan Andres Perry (juan.andres.perry@cl.ey.com)
   • Barbara Veloso (barbara.veloso@cl.ey.com)
Ernst & Young, LLP, Latin American Business Center, New York
   • Pablo Wejcman (pablo.wejcman@ey.com)
   • Mariela Gonzalez (mariela.gonzalez@ey.com)
   • Ana Mingramm (ana.mingramm@ey.com)
   • Enrique Perez Grovas (enrique.perezgrovas@ey.com)
 

The information contained herein is general in nature and is not intended, and should not be construed, as legal, accounting or tax advice or opinion provided by Ernst & Young LLP to the reader. The reader also is cautioned that this material may not be applicable to, or suitable for, the reader's specific circumstances or needs, and may require consideration of non-tax and other tax factors if any action is to be contemplated. The reader should contact his or her Ernst & Young LLP or other tax professional prior to taking any action based upon this information. Ernst & Young LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect the information contained herein.

 

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