CHILE: An Introduction to Labour & Employment

Practice Area Overview 

The political and economic process that our country is going through today leads us to contemplate great challenges in our area of work. Some of these are matters that we are facing today, others we will see in the medium and short term, as well as those that we hope will be long-term changes in our country.

On a daily basis, with new faces in positions of power, we see that labour law has been one of the key pillars of the proposed social changes. We could say that the beginning of the above has been reflected in the new minimum income, where we have seen a government willing to sit at the table with the most important unions in Chile to reach points of consensus. At the same time, measures are proposed for small and medium-sized companies to cope with the change, but we will have to see how the campaign pledge for minimum income proposed for these four years of government will materialise in a country in the midst of the most severe inflation of the last decade.

Our eyes are not only on the legal minimum wage (we could even say that this was the goal) but in the coming months the most important adjustments could be the reduction of the weekly working hours to 40, changes in the collective bargaining system and the modification of the Chilean social security system.

If this is the case, each issue is becoming more considerable and more impactful for our clients and for the country in general.

It has been more than 17 years since the last change in the legal maximum weekly working hours. Now, with a technical committee working on the guidelines for the implementation of the reduction to 40 hours per week, we hope that both the progressiveness of the measure and the protection of small and medium-sized companies will once again be taken into account. This will be the only way to provide flexibility in the process of change. Undoubtedly, the implementation of this measure will influence the form of organisation that prevails in Chile, even opening the door to a four-day working week.

On the other hand, another imminent modification that has been supported by the new leadership (and that is contemplated in the draft of the new constitution) is the change in collective bargaining, incorporating the possibility of branch, sectorial and territorial bargaining, as indicated in the draft.

According to the new text, there are a series of problems that will have to be addressed, such as the exclusivity of collective bargaining in unions, excluding the negotiating groups that today can negotiate according to our regulations. Likewise, the territorial and industry coverage targeted by the new collective bargaining regulation is expected to lead to a higher rate of unionisation and more complex collective bargaining, with high possibilities of using the right to strike as a pressure mechanism.

The above could cause a significant change in the way we currently conceive labour law in Chile. In our country, unionisation rates do not reach more than 6.3% of companies according to the last ENCLA 2019 survey of the Labour Direction (data prior to social outbreak), so the effect of the implementation of territorial and/or branch negotiations could drastically increase that percentage, reaching of course the sectors with lower union membership such as small and medium-sized companies.

Moreover, one of the most relevant topics that we will soon have to face - perhaps the most important of all - is the change in the pension system. The government has already indicated that reforms will be made in this area, together with the tax reforms that are planned for this presidential term. Added to the text of the draft of the new constitution, this could mean an overhaul of the current social security model and even the end of the already vilified Pension Fund Administrators.

In this same sense, the text of the draft constitution makes it clear that it will be a public system, whose financing will be provided by the state, workers and employers. Added to the principles enshrined (such as solidarity, unity, universality and participation), this allows us to identify the imposition of a new model that incorporates a higher level of participation of both the employer and the workers in the contributions made to the social security system.

This represents one of the greatest challenges in the short and medium terms, since we are starting from a point of departure that will complicate the terrain for any social security system to be implemented, placing on the shoulders of the state an important burden for which today it is only minimally responsible.

Thus, among the important issues that will be on the table is the implementation of a redistribution system and the transition of the individual funds to a solidarity approach. This will probably start with voluntary transition mechanisms, like the ones we have had since 1980, to avoid the social division that will be caused by touching the individual savings that many keep in their Pension Fund Administrators.

On the other hand, it is impossible not to reason about the age of the beneficiaries of our system. We are an ageing population and we have more people starting their retirement than starting to pay tax. This will undoubtedly break the system quickly if we do not manage to balance the figures of income and outflows, together with the mandatory incentive campaign for formal work. Regarding the latter, we cannot lose sight of the strong increase in informal work that is outside the system or contributes a minimal amount, not to mention the strong labour force coming from foreign workers who do not have formal jobs.

Another key point to consider will be the general increase in the cost of labour in Chile. The change in the social security system will probably focus on increasing the percentage of mandatory contributions; Chile currently maintains an almost non-existent employer contribution that does not match the reality of its peers in the Organisation for Economic Co-operation and Development. Another point that could try to match the recent changes in OECD countries would be the increase in the retirement age, an issue that is also constantly being questioned.

In conclusion, Chile today is on the verge of important regulatory changes in labour matters, which will not leave any industry exempt from the revision of labour force and work dynamics. We hope that like many turning points in history, this will be an opportunity to optimise and improve our clients' processes, as well as to improve the quality of life of the Chilean population. We will be supporting every step of the way, reporting progress and collaborating in the challenges ahead.