Recently, the Supreme Court enacted an important ruling (Rol 47.874-2016) in regards to the dismissal letter that is given to employees informing the cause of their termination.

Companies often overlook the dismissal letter and its importance. In many cases, the letters are drafted by managers and not lawyers. They often lack the legal ground to properly sustain and explain the cause of dismissal in the case the matter goes to court.

We have seen in many cases that the cause of dismissal is wrongly applied to the specific case at hand and they tend to indicate only in a broad general manner the cause of termination. In other occasions, although a valid legal cause, it is hard to prove the legal cause in court, leaving lawyers with an up hill battle if the employee decides to take the case to court.

In order to legally dismiss an employee, the employer must comply with several basic steps, which we summarize as follows:

  1. The termination of the work contract may only be realized pursuant to some of the 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.
  2. The employer 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.
  3. 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.
  4. All social security contributions must be duly paid. Otherwise, the termination may be annulled or voided by a labour judge.
  5. 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.

In Chile, taking legal action is more common that one would think, as employees are often incentivised to do so. For example, severance may be increased by anywhere from 50% to a 100% if the dismissal is ruled 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. This is further amplified by the fact that employees tend to win over 90% of employment lawsuits (termination wrongly executed).

In the case of the dismissal letter, it is a crucial piece of evidence in court proceedings and on many occasions is done incorrectly or without thought.

The Supreme Court has confirmed in its recent ruling 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, not being able change the cause once the matter goes to trial. In addition, it is also binding regarding the facts surrounding the dismissal.

The ruling has pointed out three issues that we would like to highlight:

  • The letter must indicate a legal cause of dismissal;
  • The letter must indicate the facts for terminating the work contract. This cannot be explained in a general broad manner but specifically on the terms the dismissal is based on; and
  • The employer may not change the legal cause for dismissal or other facts pertaining to the case other than the ones informed through the letter of dismissal to the employee.

In conclusion, a badly written letter may leave labour lawyers in a very bad position to sustain and defend the employers' decision to terminate the work contract.

We highly recommend keeping in mind the importance of the dismissal letter, ensuring the all of the legal requirements and steps to terminate an employees work contract are followed with care. In this regard, small honest mistakes may lead to significantly higher costs for the company.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.