Lex Mundi Labor and Employment Desk Book C L A R O Y C I A. CONTACT INFORMATION: Andres Valdes. Tel: (56-2)

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1 Lex Mundi Labor and Employment Desk Book C L A R O Y C I A. CONTACT INFORMATION: Chile Andres Valdes Tel: (56-2) jmeyzaguirre@claro.cl Assistant: Paula Martens T. 1. Do you have a plant closing law in your jurisdiction and if so, what does it require? No, Chile does not have a plant closing law. In general, pursuant to the Chilean labor Code (the Labor Code ) employees terminated must be given prior notice, or payment in lieu thereof, and are entitled to severance payment of one salary per year employed with a legal ceiling (see response to question 6 below). Employers must pay at least the legal amount, but can pay more. Chilean legislation also provides a mandatory unemployment insurance, paid by the employer and in a lesser part by the employee. 2. Are there special rules on releases/waivers in your jurisdiction? Chilean labor laws provide certain minimum rights which cannot be waived while the relevant labor agreement is effective. However, rights above and beyond such minimum rights can be amended, released or waived as agreed by the relevant parties

2 3. What are the equal employment opportunity/non-discrimination categories in your jurisdiction? The Labor Code provides that acts of discrimination are contrary to the principles of labor laws and these are defined as the differences, exclusions or preferences based on motives of race, color, sex, age, marital status, unionization, religion, political opinion, nationality, national heritage or social origin, the purpose of which is to annul or alter equal opportunity or treatment in employment and occupation. However, differences, exclusions or preferences based on qualifications required for a specific employment are not considered discrimination. The Labor Code also provides special rules on sexual harassment and the Internal Regulations (which is a document that must be prepared by the employer in the case of a business employing 10 or more employees) must contain the procedure to investigate and sanction sexual harassment (see the end of response to question 7 below). Finally, note that Chile is a signatory of the International Labor Organization ( ILO ) Convention 111 on Discrimination (Employment and Occupation). 4. What are the minimum wage and overtime rules (and exemptions) in your jurisdiction? As of October 30, 2006, the minimum wage is Ch$ (approximately US$258 on the same date). However, for workers below 18 years of age the minimum wage is Ch$ (approximately US$194 on the same date). Overtime is defined as the amount of time which exceeds the maximum legal working hours (45 hours per week) or the agreed working hours, when the latter are lower. In employments that are not harmful to the health of the employee, overtime can be agreed, although it can only be agreed to up to a maximum of two hours per day. Any overtime must be paid with a surcharge provided in the Labor Code. Overtime can only be agreed to attend to temporary needs or situations of the company. Such agreements must be in writing and have a transitory effectiveness of no longer than three months, although this can be extended by agreement of the parties. Despite the lack of a written agreement, the time worked in excess of the agreed schedule with the knowledge of the employer, is deemed to be overtime. Special rules apply to employees of the commerce sector in days prior to Christmas and other holidays. 5. Is there employment-at-will, or some other rule, in your jurisdiction. What are the exceptions? There is no concept of employment-at-will as such in Chile. We understand employment-at-will to be employment that can be terminated at any time, and for any reason or no reason at all. The closest, as noted below, is the case of the employer who can terminate unilaterally the employment of employees who have authority to represent their employer and, in general, those who enjoy the exclusive confidence of their employer. In this case such employees are entitled to severance payment and 30 days prior notice exchangeable for the payment of the last monthly remuneration. 6. What are the legal obligations upon terminating an employee in your jurisdiction? In Chile, employment agreements can only be terminated in the cases and manner provided by the Labor Code. The cases for termination provided by the Labor Code are: (a) mutual agreement; (b) resignation of the employee, with at least 30 days of anticipation; - 2 -

3 (c) death of the employee; (d) expiration of the term of the employment agreement; (e) conclusion or completion of the work or service that gave origin to the employment agreement; (f) force majeure or acts of God; (g) expiration in cases specifically indicated by law and referring to faults (including sexual harassment) incurred by the employee or by the employer in the performance of their respective duties; (h) needs of the enterprise, such as those required for the rationalization or modernization of systems, fall in productivity, changes in market conditions or the national economy that make the separation of one or more employees necessary; and (i) unilateral termination by the employer of employees having authority to represent their employer, such as managers, assistant managers, agents or attorneys-in-fact, and, in general, employees who enjoy the exclusive confidence of the employer. If the employment relationship terminates for any of the causes stated in (h) and (i) above, the employer shall give the employee a 30-day advance notice before material separation. Notice is not required, however, when the employer pays to these employees cash equivalent to the last monthly remuneration in lieu of such notice. If the employment contract is terminated pursuant to letters (h) or (i) above, and the employment relationship lasted without interruption for at least one year, the employee shall be entitled to a severance payment equal to 30 days of remuneration per year of service (or fraction in excess of six months), if rendered without interruption to the same employer which is terminating the employment agreement. This severance payment has two legal limits: (x) a limit of 330 days of remuneration. The maximum limit does not apply, however, to employees hired before August 14, 1981; and (y) a limit on calculation. Severance payment is calculated on the basis of the last monthly remuneration, which for these purposes has a legal ceiling of approximately U.S.$3,160 (as of October 30, 2006). Please note that the aforementioned rules set forth the minimum rights an employee is entitled to upon discharge. The parties may agree, individually or collectively, on better severance benefits. In the other cases, the employee has no right to severance payment. However, if the employee does not agree with the ground on which termination was based, the employee can file suit for improper dismissal before a labor court. The employer has the burden to prove that the ground for termination existed. If the employee succeeds in the claim, the employee shall be entitled to the severance payment, increased up to between 30 percent to 100 percent. Employment agreements of union leaders and pregnant women cannot be terminated except with the approval of a court. And courts can only approve the termination of an employment agreement in the following cases: (i) expiration of the term of the employment agreement, (ii) conclusion of the work or service for which the employee was hired, or (iii) certain serious faults specified by the law (e.g. repeated unjustified absences, theft, etc.) Upon termination of an employment agreement there are other payments that may correspond, whichever the cause for termination. Such payments are proportional vacations and legal annual bonus, payments that may or may not apply depending on each case. In the case of sexual harassment (see letter (g) above), the affected employee can take a claim in writing to the management of the employer or to the Inspección del Trabajo (the government agency in charge of labor - 3 -

4 compliance, the Labor Bureau ). The law establishes a procedure depending on where the claim is filed, which includes an investigation by the employer of the facts founding the complaint, the adoption of protection measures, and the presentation of the conclusions or comments of the labor authority. The applicable sanctions that may be imposed include dismissal and fines. The employee who falsely invokes sexual harassment could be subject to civil liability and other general legal actions. 7. Are there any family and/or medical leave laws in your jurisdiction, and if so, what do they require? Yes, there are family and medical leave laws. We will refer to the most relevant: a.- Maternity leave The Labor Code provides that female workers are entitled to maternity leave of six weeks prior to delivery and 12 weeks thereafter. The father is entitled to four days leave, to be taken in one period from the day of birth or distributed in the first month thereafter. If the mother dies during delivery or during the term of her remaining maternity leave, the father will be entitled to the balance with the same rights as the mother. To make use of maternity leave, the employee must deliver to the employer a medical certificate evidencing her pregnancy. For the whole duration of the maternity leave, and for one year after its expiration, the mother (or father, if applicable) shall be entitled to labor protection (fuero laboral), i.e. employment may not be terminated except with a court authorization, as indicated above. b.- Other family leaves The mother has the right to paid leave in case of sickness of the child under one year old. In the absence of the mother, the father will have such right. The leave must be evidenced, and the period determined, by the relevant medical certificate. When the health of a minor (under 18 years old) requires personal care due to a serious accident, or a terminal disease or other serious illness, the mother (or father in her absence) will be entitled to a leave of up to the number of hours equivalent to 10 days worked in a year, distributed (in whole or partial days) at the discretion of the mother (or father). The leave must be evidenced by the relevant medical certificate. The time of the leave must be recovered deducting it from the annual vacation period or with overtime work, as may be agreed by the parties, or if inapplicable, by deducting the proportional sum from the monthly remunerations. In the event of birth and death of a son or daughter and the death of the spouse, employees are entitled to one day leave, in addition to the annual vacation period. This permission must be made effective within three days from the relevant birth or death. c.- Medical leave The Medical Permits Regulations provide that employees are entitled to medical leave for a determined period of time in compliance with a certificate issued by a professional physician, surgeon, dentist or obstetrician. For the duration of the medical leave, the employee is compensated by the health or social security institution to which the employee is affiliated. The authorization of medical permits for an employee affiliated to a Private Health Institution ( Isapre for its acronym in Spanish), is granted by the relevant Isapre; and for all other employees, by the Commission of Preventive Medicine and Disability ( Compin for its acronym in Spanish)

5 The relevant medical certificate must be delivered to the employer within two business days from the beginning of the medical leave. After receiving the certificate, the employer must fill a medical permit form and send it to the Isapre or Compin, as applicable, within three business days. The relevant Isapre or the Compin may approve or reject the medical permit; reduce or increase its term; or change it from total to partial or vice-versa. If the Isapre rejects or reduces the medical term, the employee or the employee s family may file a claim against such decision with the Compin within 15 business days from the receipt thereof. The employer may also file a claim when the Isapre has approved or increased the permit. The Labor Code provides that employees with a medical permit may not be fired on the basis of the requirements of the employer. 8. Please list any miscellaneous, interesting or oddball laws in your jurisdiction, and state under what circumstances they pertain. New court procedure. In the first quarter of 2007, a new oral labor procedure will come into effect replacing the current written procedure. The purpose, among other things, is to accelerate the current procedures and make them more transparent. Some inconsistencies have been detected in the amendments and they may be subject to further amendments, which is something that is currently being discussed. New rules on contractors and personnel supply. The Labor Code was recently amended to include rules which (i) govern the supply of temporary personnel and (ii) amend the current provisions on subcontracting. The main purpose of these amendments is to avoid the hiring of permanent staff through personnel supplied by third parties and protect conditions of supplied personnel, among other things. The amendments will come into effect in the first half of January, 2007 and will require, among other things, that the supply of personnel be effected only in certain cases indicated in the law, by certain registered companies and for a period not to exceed 180 days, although it could be 90 days depending on the cases. The breach of this law will result (i) in fines for the supplied company and, furthermore, (ii) the supplied personnel will be employee(s) of the supplied company with all the legal effects that entails. On subcontracting, the amendments make the principal company jointly and severally liable for labor and social security obligations of the subcontractor s employees unless it takes certain steps to ascertain that the such employees obligations are complied with. For this reason, the principal company is legally allowed to request the subcontractor for information on its employees and even withhold payments to the subcontractor to pay the subcontractor s employees. When these steps are taken the principal company becomes only severally liable. 9. Does your jurisdiction have a law requiring employers to give employees access to, or a copy of, their personnel records? There is no specific law requiring employees access to their personnel records

6 10. Does your jurisdiction outlaw or restrict drug tests, alcohol tests, genetic tests or any other kind of testing? The Labor Code does not contain rules or regulations that govern, permit, restrict or prohibit conducting drug, alcohol, genetic or other tests. However, the Labor Bureau has ruled that control measures to persons, their belongings or lockers, are permissible as long as they comply with the following requirements (Resolution 287/14, January 11, 1996): a) They must necessarily be included in the Internal Regulations of the company. b) They must be adequate to maintain the order, hygiene and security of the company and its workers, and must not entail illegal or arbitrary acts (e.g. a biased selection of the personnel to be controlled). c) They must not have a policing, inquisitive or repressive character in connection with claimed or alleged illicit acts in the company, but rather an exclusively preventive and non-personalized character. d) The control measures must be applied either to all the employees or through a random selection process. 11. Does your jurisdiction have any special rules on the payment of sales commissions? The Labor Code does not contain special rules on commissions. Note, however, that commissions (defined as the percentage over the price of sales or purchases, or over the amount of other transactions, that the employer carries out with the cooperation of the employee ) are one of the subjects included in the definition of remuneration provided by the Labor Code and, therefore, are subject to the general rules applicable to remunerations, including, among others the fact that they cannot be lower than the minimum wage referred to in the response to question 4 above. 12. What are the basic rules on enforcing non-competes and related agreements in your jurisdiction? A non-competition clause of a former employee will probably face difficulties on enforcement on grounds that it prevents the person bound by such provision from engaging in a lawful activity. Such a clause may be considered in contradiction with Article 19, N 21 of the Chilean Constitution which provides that a person may engage in any economic activity unless prohibited by law. Having said that, a non-competition clause of a former employee may be enforceable to the extent it is limited: (a) in time; (b) in its scope; and (c) geographically to a specific location; and it is entered into under circumstances which a reasonably prudent person would deem to justify in equity a restriction of this nature. The Labor Code provides that during the effectiveness of the employment agreement, the employee may be restricted from performing services within the line of business of the employer. In fact, the Labor Code provides that executing services within the line of business of the employer which had been prohibited in writing, is one of the faults incurred by the employee in the performance of his duties referred to in letter (g) of the response to question 6 above