AZ Alert | Enactment of the Labor Reform

Sep 17, 2016

On September 8th, Law 20.940 was published in the Official Journal which “modernizes the labor relations system“. With it, a series of transformations are introduced with regard to collective labor law, pointing straight to the issues of unionization, collective bargaining and strike regulation.

In fact, on September 8th of this year, the law publicly known as “Labor Reform“, which was processed for more than a year and a half in the National Congress, was published. However, it should be noted that its entry into full force will be as of April 1st, 2017.

In view of the above, it is important to know the substantive issues that have been modified by this new legal body. Along with this, it is necessary to have timely and quality information to enable the directors of the company, to make long-term planning and take decisions that will facilitate them to comply with not only the current law but adapt its structure, objectives and goals to the new requirements that it will be subjected to.

Therefore, through this Newsletter, we are informing of the main emphasis on the changes made, bearing in mind that many aspects should be clarified by the administrative doctrine of the Labor Office as well as by the judicial jurisprudence of the Labor Courts.

As for the Labor Office, on the one hand, it is in the process of training its staff to instruct them of the new legal standards and on the other – according to what has transcended-, is in the process of drafting and reviewing the opinions that will clear out many diffuse aspects of the new regulations.

As a law firm -and in what has become a usual practice-, we are constantly monitoring these actions so as to be informed and updated in this great change that has been our collective labor legislation.

The draft bill is extensive, so addressing all of the proposed changes would exceed the purpose of a Newsletter. Consequently, the fundamental changes are specified as follows hereunder.

– Pillars of the draft bill

To contextualize the understanding of this new law, it is imperative to know the objectives of the Executive Branch when it presented the respective draft dated December 29th, 2014.

The basic ideas underlying the proposed text consisted of:

  • Extending coverage of the collective bargaining.
  • Strengthening the union as the subject of the collective bargaining: union´s main subject role.
  • Extension of the right to information for the unions, in order to improve the quality of the negotiations and the relationship with the company.
  • Simplifying the procedure of the regulated collective bargaining that protects and authorizes the exercise of the right to strike.
  • Minimum base for negotiating.
  • Expansion of materials to negotiate.
  • Automatic extension of benefits of the collective bargaining to workers who join the union which negotiated them.
  • Ensuring a genuine right to strike, the term for replacement of striking workers and the voluntary reincorporation.
  • Improve the information in the collective bargaining process: a more technical and informed process.

– The main changes introduced by Law 20.940:

  1. Collective bargaining in the company
  • The union may negotiate according to a regulated procedure (with the right to leave and strike) or non-formal way (voluntarily, without any special rules).
  • Workers may join and leave the union freely from the union.
  • The worker that is part of a negotiation that culminated in the conclusion of a collective agreement remains linked to it, even if he has disenrolled.
  • The hypotheses that workers could not bargain collectively are reduced, consolidating them into a single generic hypothesis consisting of those workers who have express powers of representation and administration of the company, as managers and assistant managers.
  • For large companies (200 or more employees) and medium (50-199 employees) it be will be mandatory to have intercompany union negotiations when a) workers from companies in the same industry or economic activity are grouped together, and b) a minimum number of workers join in the company that they will negotiate with. In micro and small companies the negotiation with the intercompany union shall be voluntary for the employer.
  1. Extension of benefits
  • The benefits of a collective agreement lie only in those workers who participated in the respective collective bargaining process.
  • The extension agreement or reference of not having reached its conclusion is incorporated as new mandatory content of the collective agreement. This means that the parties of the collective agreement -company and union- may agree to extend wholly or partially the benefits of a collective agreement to those workers without union affiliation, who must agree to the extension and be bound to pay all or part of union fees of the respective union.
  • If the extension of benefits is made without union agreement then an anti-union practice incurs.
  • It is clarified that individual remuneration agreements based on skills, qualifications, suitability, responsibility or worker productivity, are not anti-union practices.
  • The employer is empowered to extend to all company employees the wage adjustment clause according to CPI, without extension agreement with the union when the adjustment is stated in the employer’s response to the draft collective agreement.
  1. Changes in the Strike
  • The most significant change for companies that brings about the law is regarding the strikes, with the absolute ban on replacement -whether with external or internal workers- of workers on strike.
  • Violation of this mandate implies incurring in a gross anti-union practice, the sanction of which will be from 1 to 100 UTM for each worker involved in the negotiation.
  • In the case of large and medium companies, only if in the final offer given within the time prescribed by law, provisions identical to the current collective agreement are offered, then workers can voluntarily reincorporate to their jobs as of day 16 since the strike is effective. In the case of micro and small companies, such period shall be from the 6th day. In case that the terms of the latest offer are not followed as per the identical provisions, the reincorporation may be done as of the 30th day (large and medium companies) or the 16th day (micro and small companies).
  • The figure of minimum services is created, which consists in the company and union, with the anticipation enshrined in the law, agreeing on the essential operations so that the union negotiating committee can provide the staff assigned to meet the minimum services strictly necessary for:
    1. Protection of the company´s tangible property and installations.
    2. Prevention of accidents.
    3. Guaranteeing the provision of public utility services.
    4. Tending to the basic needs of the population.
    5. Guaranteeing the prevention of environmental and sanitary damages.
  • If no agreement on this issue is achieved, the Regional Director of Labor will intervene, who may request reports to regulatory authorities on the matter to qualify the need to provide service. This resolution will only be appealable before the National Director of Labor.
  • As was previously reported, the National Labor Office will create a new Unit to tend to these requirements. This would also be one of the first pronouncements on this matter made by the labor administrative authority.
  1. Floor for Collective Bargaining
  • If there is a collective agreement in force, identical provisions set out in the current agreement shall constitute the floor of the negotiation. The adjustability, the actual increase agreed upon, special agreements on working conditions, and benefits granted by the sole signature of the collective agreement shall be excluded from the floor provisions.
  1. Procedural Aspects of the Negotiation
  • The deadline for submitting a new collective bargaining agreement draft is currently between 45 and 40 days prior to the expiration of the agreement. The new regulation alters this period, obliging the union to submit their draft not before 60 or after 45 days since the expiration date of the collective agreement.
  • The employer shall have 10 days to respond to the draft collective agreement presented by the union.
  • Collective agreements shall have a maximum term of 3 years.
  • The employer must periodically provide to their unions company information. The type of information provided is distinguished depending on the type of company.
  1. Who can collectively negotiate: Union´s Main Subject Role

With the legislation that was valid prior to Law 20.940, in a company either the Union or a group of workers that united to bargain collectively (hereinafter “Negotiating Group”) could negotiate.

The amendment stated that if within a company there existed a constituted Union, the collective bargaining could not be made by a Negotiating Group. Consequently, the Union was the main subject of negotiation and only in its absence could a Negotiating Group negotiate.

Based on this matter is that one of the claims was presented to the Constitutional Court, which was admitted, thus lacking at the present moment of certainty in respect to the mode in which the Negotiating Groups may eventually intervene in negotiations with the employer.

The AZ Labor Department is conducting a permanent monitoring of the process of implementation of this reform and organizing informative meetings with our clients, in order to properly prepare for this and other reforms in the labor area.

Along with this, it should be noted that the AZ Labor Department provides advice to clients in the process of hiring, compensation, termination of employment, subcontracting, labor due diligence, corporate policies, and support of collective bargaining processes in companies of different industries. This added to our litigation services, enables us to offer advice in solving disputes, lawsuits and labor claims.

To obtain further Information on this subject, please contact:



Jorge Arredondo

Labor Group Director




Daniela Hirsch

Senior Associate


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