LEGAL ALERT: Employment Protection Law

On April 6th, the law Nº 21.227.- (hereinafter “Employment Protection Law” or EPL) was published allowing access to unemployment insurance benefits under exceptional circumstances in the context of Covid-19 Pandemic. In summary, the law provides the following scenarios on which the employees may obtain unemployment benefits:

1. Suspension of the employment contract

1.1 Registration to operate
According to the EPL, an act of authority is required to establish health or safety measures in response to the Covid-19 virus, involving the cessation of activities in all or part of the country and totally preventing the provision of services. Formally, the EPL requires the undersecretary of the Ministry of Finances to enact the restrictions establishing the industries and areas affected.

1.2 Beneficiaries
Workers who are members of the “Administradora de Fondos de Cesantía” (AFC), even in cases where (1) the employer has stopped its activities in agreement with its workers or as a result of an act of authority, or (2) has agreed to the partial continuity of the provision of services, between the period of the declaration of the State of Disaster (March 18) and before the entry into force of the law.
The worker must register three continuous contributions in the last three months immediately prior to the act or declaration of authority. Likewise, those workers who register a minimum of six continuous or discontinuous monthly contributions during the last twelve months may also qualify, provided that they register at least the last two contributions with the same employer in the two months immediately preceding the act or declaration of authority.

Exception: The following cannot be beneficiaries

1.2.1.  Workers who, at the time the act of the authority is issued, have agreed with their employer whereby possible to ensure the continuity of the provision of services by receiving all or part of their remuneration. Nor may anyone receiving an allowance for incapacity for work (e.g. medical leave) be eligible..
1.2.2.
Those workers who have been excluded from the effects of the act of authority (e.g. essential services).

1.3 Remuneration
To determine the benefit, the average of the remunerations accrued in the last three months immediately preceding that in which the act of authority was issued shall be considered.
The remuneration shall be paid from the worker’s individual account, and when this is insufficient, it shall be paid from the joint account
This benefit is compatible with the low wage subsidy.

1.4 Treatment of the allowance in case of medical leave
Employees under medical leaves will receive their usual medical subsidy. The payment of the benefit established in this law shall be interrupted if he has had access to the medical leave and payment shall be resumed, as appropriate, after the end of the period of medical leave.

1.5 Social security contributions
The employer shall continue to pay the social security and welfare contributions, both those of his position and those of the employee, with the exception of the social security contributions of Law No. 16,744 (occupational accidents and diseases), which shall be calculated on 50% of the remuneration that serves as the basis for the calculation of the benefit established in this law.
If the employer is unable to pay the AFC, it may defer payment within 12 months after the law’s effective date, and may pay them in installments not exceeding such term, which will not accrue interest, readjustments and fines, except for the nominal readjustment of the average of the last 12 months.
Likewise, during the period of suspension indicated, they will be covered by Disability and Survival Insurance, whether the contributions have been paid or not.

1.6 Operation
The temporary suspension of the employment contract operates ipso iure when the act of authority has been pronounced,
In other words, it is not necessary to sign an addendum to the contract.
The immediate consequence of the government’s declaration is the cessation of the obligation to provide services by the worker and the obligation to pay remuneration and other allowances not constituting remuneration by the employer during such period.
In order to make the benefit operational, the employer must request it at the AFC’s website, through a simple affidavit that the worker or workers are not disqualified from receiving this benefit, along with the information necessary to make the corresponding payment to the worker.
The employer will be liable for the veracity of the declarations in the document.
However, the worker for whom the benefit has not been requested may request the benefit before the AFC, preferably in electronic form, presenting the simple affidavit already referred to.
As in the case of remunerations, the benefit will be paid in due monthly instalments and the worker will have the right to it as from the date in which the act of authority begins.

1.7 Situation of domestic workers
Domestic workers are also beneficiaries of the EPL, however, the payment is not done through the AFC but from their guaranteed severance contribution made by the employer during the relationship at the employees Pension Fund Administrator (AFP).
In this case, the respective AFP must draw from the worker’s account the equivalent of 70% of his monthly taxable remuneration, or the total balance, if this is lower.
If the act or declaration of authority is extended for more than 30 days and the worker has a balance in said account, the AFP shall draw the amount equivalent to 55%, 45%, 40% and 35% of the taxable remuneration, for the second, third, fourth and fifth months, respectively.
To make the benefit effective, the worker must file a simple affidavit with the AFP, preferably in electronic form, stating that he or she is not disqualified from receiving payment. In this case, the employer shall only be obliged to continue paying and receiving the health contribution, and disability and survival insurances.

1.8 Control
The employer shall send, on a monthly basis and by electronic means, to the Labor Inspectorate, the list of workers who have been affected by the suspension and for whom the benefits of the EPL have been requested.

1.9 Validity
The duration of the suspension shall be limited only to the period determined by the authority.

2. Agreement on temporary suspension of the contract

2.1 Requirements
Employers whose activity is totally or partially affected may sign with their workers, either personally or after consulting the trade union organization to which they are affiliated, an agreement for the temporary suspension of the employment contract.
This agreement may only be concluded outside the periods covered by the declaration of authority already referred to in point 1) of this document.
The parties may not agree on the deferred execution of the suspension. All its effects must be executed, at least, from the first day of the month following the date of conclusion of the respective agreement.

2.2 Operation
In order to make this benefit effective, the employer and the worker and/or the representative of the union representing them must submit to the AFC, preferably in electronic form, a simple affidavit, signed by both parties.
This agreement gives the right to the benefits indicated in point 1) of this document.

3. Agreements on the temporary reduction of working hours

3.1 What is it?
Employers, and workers affiliated to unemployment insurance, either personally or through the trade union organization to which they are affiliated, may agree to temporary reductions in working hours, after consultation with the respective trade union organization, if any.
In this case, the worker shall be entitled to remuneration from the employer, equivalent to the reduced working hours, and to a supplement to be charged to his individual account at the AFC and, once the balance has been used up, to be charged to the Solidarity Severance Fund.
Thus, if the working day is reduced by 50% (maximum reduction allowed by law), this supplement will amount to 25%.
However, the supplement will have a maximum monthly limit of $225,000 for each worker affected by an ordinary working day.

3.2 Remuneration
For this purpose, the average taxable remuneration accrued in the last three months immediately prior to the commencement of the agreement shall be considered.
The worker shall have the right to continue receiving the remunerations, non-remunerational assignments or benefits whose payment corresponds to be made during the validity of the agreement, (bonuses, etc).
The supplement shall not be considered remuneration or income for all legal purposes, shall not be subject to social security contribution, nor shall it be attachable.
The right to the supplement will be held from the first day of the month following the date of conclusion of the respective agreement.

3.3 Social security contributions
The employer shall be obliged to pay the social security and pension contributions corresponding to the remuneration agreed in the agreement.

3.4 Limit
A temporary reduction of more than 50% of the originally agreed working time may not be agreed.
Employers who have agreed on such reduction with one or more workers may not hire new workers who perform the same or similar functions performed by those who have signed such agreements.
In the event that an employer finds it necessary to hire new workers, for other functions, it must first offer the vacancy to those workers with a current work contract, to the extent that they have similar capacities, qualifications and suitability to perform the position or positions to be covered.
This agreement cannot be signed by workers protected by termination restrictions (i.e. under maternity protection or union representatives).

3.5 Assumptions that entitle the employer to sign the agreement:

  • Companies who pay Value Added Tax and that, as of October 2019, have experienced a decrease in the average of their sales declared to the Internal Revenue Service, in any period of 3 consecutive months, that exceeds 20% calculated with respect to the average of their sales declared in the same period of 3 months of the previous year. The employer must authorize the IRS to send information to the Labor Department in order to prove this situation.
  • Companies on a bankruptcy proceeding.
  • Companies who are on an insolvency proceeding.
  • Companies whose businesses, establishments or operations have been exempted from the act or declaration of authority or resolution referred to in article 1 of this law, need to reduce or redistribute the ordinary working hours of their workers, in order to maintain their operational continuity or to effectively protect the life and health of their workers.
    It requires the worker and the employer to issue an affidavit to the Labour Directorate.

3.6 Requirements to be met by the worker in order to sign this agreement
To register ten monthly contributions to the AFC, either continuous or discontinuous, in the case of workers with an indefinite work contract since their affiliation to the AFC or since the last time they were entitled to receive a severance payment by the AFC.
To register five monthly contributions, continuous or discontinuous, in the case of workers with a fixed-term contract, or for a construction project, since their affiliation to the AFC or since the last payment from the AFC to which they would have been entitled became effective.
Contributions must have been recorded in the last 24 months prior to the date of conclusion of the respective agreement.
The worker must register the last three continuous contributions with the same employer with whom he signs the temporary working-time reduction agreement.
On the case of the agreement signed under number 3.5.4 above (companies that have been exempted from the act of authority), the requirements for the suspension of the contract will follow.

3.7 Duration
This agreement may not be in force for more than 5 continuous months, for workers with a permanent employment contract, and 3 continuous months, for workers with a fixed-term employment contract, for a specific work, job or service.
The parties may not agree on the deferred execution of the temporary reduction of the working day.
All its effects must be executed from the first day of the month following the date of conclusion of the respective agreement.

3.8 Operation
The agreement should preferably be signed electronically, through the online platform provided by the Labor Inspectorate.
The agreement must contain at least the following stipulations:

  • Individualization of the parties, indicating the RUT of the employer, the national identity card of the worker and the information necessary to materialize the payment of the complement that will be made by the AFC;
  • Duration and date of entry into force of the agreement;
  • Average of the fixed and variable taxable remuneration earned by the worker in the last three full months prior to the conclusion of the agreement;
  • Reduced working hours, percentage of the reduction in the agreed working hours and remuneration corresponding to such working hours; and
  • Simple affidavit by the employer affirming that the requirements set forth in this title for the signing of the agreement on the temporary reduction of the working day have been met.

4. Operation of the AFC
The payment of remuneration from the AFC will continue to be made in accordance with the rules of Law No. 19.728, i.e. not the full remuneration is received but a percentage of it in accordance with the following table (Article 15):

With regard to the Solidarity Funds, payment will be governed by the following table:

In the case of workers hired for a fixed term, or for a specific work, job or service, it will be paid according to the following table:

5. Miscellaneous

5.1. Workers who avail themselves of the benefits of the EPL shall be entitled to make effective the unemployment insurance or unemployment clauses associated with credits of any nature whatsoever with banks, financial institutions, commercial houses and similar, with which they have debts in instalments or other modalities. The worker must accredit his condition as beneficiary of this law through a certificate from his employer, which he may send preferably electronically to his creditor, who must immediately activate the measures of reduction, postponement or remission of quotas or debts established in the respective commercial contract.

5.2. Exceptionally, the benefits received by the EPL may not be discounted from the settlement if the worker is dismissed due to the needs of the company.

5.3. The worker may not be dismissed for the cause contemplated in article 159 N°6 of the Labor Code, i.e., fortuitous case, due to the health contingency caused by the Covid-19 virus.

5.4. During the suspension of the employment contract, detailed in point (1), the employer may only terminate the employment relationship by application of the cause established in article 161 of the Labor Code.

5.5. Companies that are affected by the suspension of the employment contract due to an act of authority may agree not to suspend the contract, provided that there is an agreement with the employees, which must be in writing. In this case, the employer must continue to pay wages and contributions as usual. By way of example, those who decide to continue providing services under the telework modality.

5.6. A crime is created in case of fraud or abuse to obtain the benefits of the law, including the criminal liabilities for legal entities.

5.7. Companies which, having contracted or concluded agreements that are fully financed by the Public Sector Budget Act, receive the corresponding payments from the services or institutions, may not make use of the benefits of this law.

5.8. The provisions of this Act shall apply from the day of its publication in the Official Journal.

5.9. The rules on the suspension of the contract and the agreement to reduce the workday for those companies exempted from the suspension will be governed by a period of six months from the entry into force of this law.

5.10. The rest of the rules on the agreement to reduce the working day shall be in force until the last day of the tenth month from its entry into force.

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