Chile Employment Law: Changes to Work Contracts for Project Based Workers
Written by Catalina Verdaguer, Lawyer
On November 28th 2018, a new law 21.122 (hereinafter “the Law”) was passed, which modifies the Chilean Labor Code in regards to contracting workers for specific tasks or services. This type of work contract is very common; you will see this quite often in the construction, agriculture or IT industries. The need for temporary workers is most common where jobs are tied to specific projects. Employers often find that the hiring process is simpler than say a fixed term contract, as is the termination process. Additionally, fewer benefits are owed, and having a definite start and end to a job can significantly simplify things from the employer’s point of view.
Before the law, this type of labor contract was briefly mentioned in the code, and many important aspects of it were left unregulated. The new legislation (which comes into effect for agreements made as of January 1st2019), dictate several changes for this type of work contract, the three most important being it a) provides a proper definition of this type of labor contracts, and its range of application, b) establishes a minimum vacation regime for workers under this kind of contract and c) provides a severance for said workers.
The Law provides a definition of employment contracts for specific tasks or services: “… a contract in which a worker agrees to execute a task, material or intellectual, which is restricted and limited by its commencement and conclusion, and whose effect is limited to the duration of the said task. The different or stages of a project or task cannot, by themselves, be subject to two or more consecutive contracts of this kind, in which case the contract will be understood to have been of an indefinite term”.
This new definition highlights the specificity of the task – it must be something particular and distinct to classify. This avoids that smaller tasks within the main task be used as the object of the contract. The law then continues to explain that tasks or services of a permanent character (those that, by nature, do not conclude, e.g. accounting) are excluded from this type of employment contracts.
The law does not establish a temporal limit to this type of contracts, but it is assumed that they must be kept relatively short. Additionally, when the contract concludes, the employer is free to re-hire the worker and continue to re-hire him after every conclusion.
The Law states that any worker with a) more than one contract for a specific task or service, rendered to the same employer, and b) has been working for more than a year, has the legal right to fifteen days paid vacation. Here, the accumulation of contracts is valid.
Regarding proportional vacations (when the worker has ceased to work for the company before completing the year of service that entitles them to 15 days for holiday, they must receive compensation for that benefit, which is equivalent to the full compensation calculated proportionally to the time between when they were hired and when they cease to work), when the worker does not meet the requirement of working for at least a year, they will now also be able to get this benefit. They will now be able to defer the payment of this benefit to a posterior contract with the same employer, as long as this is explicitly stipulated in the worker’s discharge and general release document, which has to be done at the end of each contract.
Severance / Indemnity
The law states that if the contract with the worker concludes because the ‘ work or service that gave origin to the contract concludes’, the worker is entitled to a severance payment for the period of service. The employee will have the right to this benefit as long as his contract has been into effect for at least one month. Specifically, this severance consists of 2.5 days of remuneration for every month the employee has worked, plus any fraction of a month exceeding 15 days.
Additionally, with this, the employer can terminate the contract in a justified manner – this means that, by receiving and accepting this benefit, the worker is incapacitated to sue for wrongful termination.
This severance system will be implemented gradually, depending on when the contract was entered into:
- From January 2019 to July 2020: 1 day per month plus any fraction of a month exceeding 15 days.
- As of July 2020: 1.5 days per month plus any fraction of a month exceeding 15 days.
- As of July 2021: 2 days per month plus any fraction of a month exceeding 15 days.
- As of January 2022: 2.5 days per month plus any fraction of a month exceeding 15 days.
Indefinite vs. specific tasks or services contract: The law has indeed modified many aspects of this employment contract, granted new benefits, and established limitations, but, from the point of view of the employer, it is still more convenient to enter into specific tasks or services contracts then say a fixed term contract. This is mainly because the law provides a certain order to the working relationship while avoiding lawsuits and judicialization.
This type of contract will be most important to clients who need workers on a temporary or project basis. Agriculture workers hired for labor during harvests, IT professionals working on specific projects, or workers providing labor for a construction project would most likely fall under this type of work contract.
The main take away is that companies will need to ensure they are using this type of contract when it is appropriate, contracts meet the legal requirements of the new law, and that the additional benefits related to severance and vacations are accounted for when budgeting labor costs.
Harris Gomez Group is a Common Law firm, with offices in Santiago, Bogotá, and Sydney. We also have legal teams in Mexico, Bolivia, Ecuador, Peru, Brazil, and Argentina. Over the last 16 years, we have been supporting foreign companies with their growth in Latin America. Many of our clients are technology companies, service providers and engineering companies that focus on the mining, energy and infrastructure markets.
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