Amendments to the Employment Protection Law in the context of the Covid-19 pandemic

On june 1st, 2020 Law 21,232 was published enacting amendments to Law 21,227 (known as the “Employment Protection Law”), which facilitates access to benefits under the Unemployment Insurance Law 19,728 to be paid by the Administradora de Fondos de Cesantía (Unemployment Fund Administrator hereinafter the “AFC”) in exceptional circumstances on the context of the Covid-19 pandemic. The approved regulation incorporates relevant effects on corporate matters and modifies the implementation of the alternatives proposed by the recently enacted Employment Protection Law.

For more information about Law No. 21,227, we suggest you review our publication more.

The amendments made by Law 21,232 are the following:

Corporate matters:

  1. A prohibition has been established for corporations that are subject to the Employment Protection Law, and for corporations that are part of a business group in which any of the entities of the group has been subject to the Employment Protection Law, whereby they may not distribute dividends to their shareholders for the year in which they have been subject to that law.
  2. Companies that are controlled by companies that hold capital or related companies in territories or jurisdictions with preferential tax regimes (also called tax havens), will not be able to benefit from the Employment Protection Law.
  3. It was also established that the directors of public limited companies in which all or most of the employees make use of the agreements to suspend the employment relationship, may not receive any fee or allowance for the exercise of said position of director, in excess of the percentages corresponding to the unemployment insurance.

Modifications to the implementation of the Employment Protection Act:

  1. It was established the prohibition to suspend the labor relationship to workers affected by maternity employment stability according to article 201 of the Labor Code.
  2. The implementation of the alternatives of the Employment Protection Law will be allowed to the companies that are hired by the State for the execution of works or investment projects provided that these services are paid by the advancement or progress of the works./li>
  3. In the cases of suspension agreements, a presumption of partial affectation of the company’s activity was incorporated, when, in the month prior to the subscription of the agreement its income from sales or services taxed by Value Added Tax has experienced a drop equal to or greater than 20% with respect to the same month of the previous year.
  4. Any worker, individually or through a union organization, shall be allowed to claim before the Labor Department for an analysis of an unlawful execution of the agreements or non-compliance with legal requirements. The Labor Department may request tax information from the company and will be obliged to file a judicial report on the non-compliance found.
  5. The percentage of the remuneration affected to the social security contributions that must be paid during the suspension of the labor relationship was increased to 100%, establishing that the contributions destined to health, to the unemployment insurance and the Sanna Law, will be contributed on the basis of a 100% of the gross income of the worker of the last month, before taking advantage of the unemployment insurance. As for the contributions to the pension fund, the commission the administrator of this fund and the disability and survival insurance will also be contributed by the employer calculated on 100% of the amount that the worker receives from the AFC as a benefit of the unemployment insurance.
  6. For employers who, during the term of the established measures, do not comply with the obligation to pay the pension contributions related to the administration of pension funds and disability and survival insurance, the term for payment was increased to 24 months, with the right to make such payment in installments.
  7. The possibility was established for companies that must continue to operate even under an act of authority to enter into suspension agreements only with respect to workers who provide services that are not essential to that company.
  8. It was ordered that alimony paid by the employer in compliance of a court order shall be paid by the AFC in the corresponding proportion, without the holders of the right to alimony having to carry out any formalities.
  9. It was established that, in the case of dismissals subsequent to suspension agreements, as well as dismissals that occur during the reduction of working hours agreement, the calculation basis for severance and payment in lieu of notice indemnities will set out by the gross remuneration that the worker had agreed upon prior to the implementation of the Employment Protection Law, without considering the benefit he received from the AFC.
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