Government support for business and workers in Chile

Law No. 21.227, published on 6 April 2020, regulates the different government schemes available in Chile to help employers and employees in the current COVID-19 crisis. These measures include: 

1. In the event that authorities issue an act that establishes sanitary or internal security measures for the control of COVID-19, which cause a cessation of activities in the country or in a certain territory that totally prohibits employees from rendering services, employment contracts will be immediately suspended during the situation that produced the force majeure event, and employees with Unemployment Insurance will receive benefits that correspond to the funds in their Individual Unemployment Accounts and the Solidarity Unemployment Fund established by the Unemployment Insurance Law (Law No. 19.728.)
2. Employers whose activities are totally or partially affected by the measures taken to counter the spread of COVID-19 may subscribe with their employees, individually or collectively through a union organisation, an agreementfor temporary suspension of the employment contract, which will have the same effect as suspension through an act of authority, according to rules on extraordinary access to unemployment insurance benefits as set down in Law No. 19.728. This scheme can only be subscribed to during a force majeure event, and applications cannot be made after 6 October 2020.
3. Employers, employees with Unemployment Insurance and union organisations acting on behalf of affiliates, may agree to the temporary reduction of the working day. This reduction must not surpass 50% of the employees' current working hours. The period for these reductions is between one and five months for indefinite contracts employees, and between one and three months for fixed-term contracts employees. Furthermore, their application cannot exceed 6 February 2021.

1. During the employment-contract suspension that has been either ordered or voluntarily adopted, the employer must only hold and pay the employee's social security contribution. 

Additionally, the employee will have the right to receive the benefits from the funds of the Individual Unemployment Account and those of the Solidarity Unemployment Fund. These benefits will be calculated according to a percentage of the employee's salary with a maximum limit of 120.3 UF  (roughly equal to USD $4.048) per salary as established in Law No. 19.728:

• First Month:    70% of the salary
• Second Month:    55% of the salary
• Third Month:    45% of the salary
• Fourth Month:    40% of the salary
• Fifth Month:    35% of the salary
• Sixth Month and after: 30% of the salary.

2. As for temporary reduction of the working-day agreement, during this period the employee will be entitled to part of the employer's remuneration burden, equivalent to the reduced working day, and to a supplement charged from his Individual Account for unemployment. and once the resources of this have been exhausted, charged to the Solidarity Unemployment Fund. This supplement has a maximum limit of $225.000 Chilean pesos (approximately USD $263.92) per month.

In addition, the employer must pay each employee any bonus, assignations, or any other sporadic or occasional payment that he is entitled to receive. 

3.1 Employers

Suspension due to an act of authority:

• All employers unable to operate due to an act of authority regarding measures to stop the spread of COVID-19.

Suspension due to an agreement with the employee:

• All employers whose activity is totally or partially affected due to measures to stop the spread of COVID-19.

Working-day reduction agreement:

• Employers paying VAT whose sales average declaration to the Internal Revenue Service has decreased over three consecutive months and exceeds 20% compared to the same three-month period during the previous year;
• Employers who are in a reorganisation procedure due to insolvency;
• Employers who are in a bankruptcy proceeding; and
• Employers who need to reduce or reorganise the work schedule for employees to continue operations or protect employee health.

3.2 Employees

Suspension due an act of authority:

• Employees must have three consecutives unemployment insurance contributions registered during the three months immediately preceding the act of authority, or a minimum of six unemployment insurance contributions registered during the last twelve months, provided that the two last contributions were registered with the same employer during the two months immediately preceding the act of authority.
• Employees with a labour continuity agreement with the employer or are covered due to medical leave at the time of the declaration of the act of authority, are not covered by this scheme.

Suspension due an agreement with the employer:

• Employees must fulfil the same requirements indicated above, but in this case the period for unemployment insurance contributions is counted from the date of the agreement. 

Reduction of the working-day agreement:

• Only fixed working-hours employment contract employees are covered by this scheme.
• Employees must have ten unemployment insurance contributions registered regarding indefinite contract employees, and five unemployment insurance contributions registered, regarding fixed-term contract employees.
• Employees covered by labour protection, such as union or maternity protection, cannot subscribe to these agreements.

4.1 Suspension due an act of authority (force majeure)

The employer must present an affidavit to the Unemployment Insurance Fund Manager describing the act of authority responsible for the force majeure and a list of names of the employees affected by this act along with the declaration that they are not in any way excluded according to Law No. 21.227 from eligibility for the benefits of this scheme.

4.2 Agreed suspension of the employment contract

The employer and the employee or his union representative must present an affidavit to the Unemployment Insurance Fund Manager stating that the activity of the Company has been totally or partially affected due to COVID-19 measures. The affidavit must also include a list of employees who have been suspended and a declaration that the employees are not in any way excluded according to Law No. 21.227 from eligibility for the benefits of this scheme.

4.3 Working-day reduction agreement

An employer along with the employee or his union representative must register the agreement with the Labour Board indicating the parts of the agreement, the period of time of the reduction, the average salary during the previous three months before the date of the pact and the decreased working day that was agreed upon along with the percentage reduction compared to the original. 

Companies that are affected, but at the same time are being paid by the State according to other agreements, cannot apply for these benefits.

1. Until 6 October 2020 or as long as the Exceptional Constitutional State of Catastrophe decreed by the Government is still in force, employers cannot fire employees using the force majeure event as grounds for termination.
2. During the suspension produced by the act or declaration of authority, an employer can only terminate employment relationships by applying legal grounds established in article 161 of the Labour Code, which refers to “Business Necessities”. To apply this as grounds for termination of the employment agreement, the employer must pay the legal severance for years of services and in lieu of prior-notice severance.
3. If an employee has agreed with his employer on a working-day reduction and is then fired, the legal compensation for dismissal will be calculated and paid according to the original salary.