The Importance of Dismissal Letters
Dismissal letters are an important part of Chilean labour law in terms of protecting workers rights. Specifically, the dismissal letter is used to inform employees the cause of their termination which needs to be for an approved cause as set out by local labor laws.
The dismissal letter and its importance is often overlooked. We often see letters that are drafted by managers instead of labour lawyers. An improperly drafted dismissal letter will lack the legal grounds to ensure the cause of dismissal would be upheld if the matter were to go labor courts.
A typical mistake we see is using a cause of dismissal that is incorrectly applied or when the cause of dismissal is indicated in general terms instead of using the specific causes approved by Chilean Labor Laws. Another important mistake when a valid legal cause is used but the reasoning cannot be proved in court making it difficult for a legal counsel to defend.
Companies need to comply with several basic steps in order to legally dismiss an employee:
- The termination of the work contract can only be done for legal causes that the Chilean labour Code provides (e.g. serious breach of contract, “business need” duly qualified, non-attendance, death, etc.). In Chile, there is no termination at will.
- The company must provide a written letter stating the cause of dismissal. A copy must be handed to the employee and another sent to the Labour Office (Dirección del Trabajo). This has to be done the moment the employee is removed from the work place and no later then 3 days.
- A ” Finiquito” or a termination release agreement must be drafted according to legal standards, providing all the severance compensations that the employee has the right to. This document indicates the amount of severance the employee is entitled to receive.
- All social security contributions must be duly paid. Otherwise, the termination may be annulled or voided by a labour judge.
- All severance must be duly paid no later than 10 days counted from the date of removal. The employee can agree to having severance payments made in instalments, otherwise, the severance must be paid in a lump sum within the 10 days.
Why is it important?
It is common in Chile for employees to take legal action. They are often incentivised to do so given the labour courts are pro-worker and tend to win over 90% of employment lawsuits (dismissals wrongly executed). Severances to employees can be increased from 50% to a 100% if the dismissal is ruled by the courts to be wrongfully imposed. In addition, from a legal perspective, employees do not have the evidence burden (onus probandi) and the Court takes their statements as lawful and binding.
Why are dismissal letters important?
Dismissal letters are important pieces of evidence in labour court proceedings. The Supreme Court has confirmed in past rulings the importance of providing the employee with the dismissal letter and that the company is legally tied to the cause that is stated in the letter. This means that companies are not able to change the cause once the matter goes to trial and it is also binding regarding the facts surrounding the dismissal.
The ruling has pointed out three issues that are important to the dismissal letter.
- The letter must indicate a legal cause for the dismissal;
- The letter must indicate the facts for terminating the work contract. This cannot be explained in a general broad manner but specifically based on legal reasons as provided by Chilean law; and
- The employer may not change the legal cause for dismissal after the fact or change any details pertaining to the case other than the ones informed through the letter of dismissal to the employee.
A dismissal letter that is poorly written will leave labour lawyers in a weak position to defend the employers’ decision to dismiss the worker. It is important to keep this in mind when reviewing the dismissal of a worker, when drafting the dismissal letter, and lastly, ensuring the all of the legal steps are followed with precaution. There is no doubt that any mistakes during the process may lead to significantly higher costs for the company if they have to defend themselves in labour courts.
Ax Legal is a legal and business advisory firm that works with foreign companies in Latin America. Our team of legal and commercial advisors have a distinguished track record of helping foreign technology and services companies to grow and operate in Latin America. Over the years, we have worked with starts up, mid-size businesses, and publicly listed companies. The one common factor that connects are clients is that they are leaders in their field, providing innovative technologies and services to the industrial sectors.
To better understand how we can support you in the Region, please contact Cody Mcfarlane at email@example.com