We invite you to read the opinion piece by our partner Jorge Arredondo, in which he analyzes the Chilean labor market and the regulatory challenges posed by unemployment.
The Chilean labor market is facing a situation that should not be treated as business as usual. Current unemployment levels are reminiscent of those seen during the pandemic and are accompanied by a rise in informal employment and alarming figures for female unemployment. We are facing an urgent crisis, and it is necessary to implement a series of measures aimed at reducing unemployment.
However, a single reform is not enough. On the contrary, the problem requires a suite of tools. For example, universal childcare can help, especially in addressing the barriers that affect women’s labor force participation, but it is not a panacea and will not, on its own, solve the problems of unemployment or informality.
Labor regulations must be better adapted to the standards and cycles of certain industries. That is why proposals such as hourly contracts or the expansion of working-hour distribution ranges can be positive measures, provided they respond to real productive needs and are designed within the appropriate institutional framework.
The same logic applies to the debate on work schedules with longer cycles. A distribution that is not limited solely to four-week periods but instead considers half-yearly or even annual ranges could be discussed.
In the case of the 40-Hour Law, any substantive change must be approved by the National Congress. Modifying a public policy of this magnitude by decree would amount to bypassing democratic institutions.
Current Grounds for Termination
Regarding the current system for terminating contracts, public debate has focused too much on severance pay, when the underlying problem may lie in the entire system of grounds for termination. Rather than the severance pay system, Chile should reexamine the system of grounds for contract termination, as it no longer reflects current realities.
In 2001, the ground for dismissal due to lack of technical competence was removed from Chilean law. Since then, there has been no legal ground that directly addresses issues of performance or inadequate professional qualifications. This absence has a significant practical impact. Many companies resort to the “business needs” ground to address problems that do not necessarily fall under that category. However, this ground was designed for reasons of business organization or factors external to the provision of services, not to evaluate individual performance.
When used for other purposes, it often fails to meet the standard required by law and ultimately leads to an increase in litigation. If there were a more appropriate ground for dismissal regarding qualifications or performance, many disputes could be better resolved and avoid reaching the courts.
The future of work cannot be discussed solely in terms of the stability of current regulations or economic urgency. It requires updating institutions, revising grounds for termination that no longer reflect the reality of the labor market, improving procedures, and strengthening legal certainty—but without bypassing the democratic deliberation that legitimizes labor reforms.
Column written by:
Jorge Arredondo | Partner | jarredondo@az.cl
