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Chile: Supreme Court of Justice Decision Disallows Additional Severance Payments for Teachers in Private Sector

(July 30, 2010) Chile's Labor Code was amended on March 29, 2008, to include provisions establishing that final trial decisions in labor cases may be challenged exclusively by the annulment recourse. The recourse, which suspends application of the trial decision, is decided by an appellate court. In general, no further appeal is allowed against the appellate court's replacement decision, but as an exception the Code allows for a “recourse for the unification of jurisprudence” in the case of conflicting appellate decisions on the same legal matter, whereby the SCJ will resolve the contradictory appellate interpretations.

For the first time since the adoption of the 2008 Labor Code amendments, the Supreme Court of Justice (SCJ) agreed to hear a recourse, and it issued a replacement decision on the recourse on March 17, 2010, unifying the jurisprudence related to articles 78 and 87 of the Teachers' Statute. The articles mandate that private employers are to make additional severance payments to teachers terminated in noncompliance with requirements established in article 87; that is, on grounds other than those mentioned in article 161 of the Labor Code. Article 161 allows an employer to lay off teachers on grounds of the “needs of the company.” (SCJ Decision [in Spanish], Poder Judicial de Chile website,
(last visited July 23, 2010); Teachers' Statute [in Spanish], Biblioteca Nacional del Congreso de Chile – BCN website, (last visited July 23, 2010); art. 1, para. 1, Código del Trabajo [Labor Code] (as amended on Mar. 29, 2008) [in
Biblioteca Nacional del Congreso de Chile – BCN website, (last visited July 23, 2010).)

The additional severance pay is equivalent to the total amount of the salaries (pay is calculated in Chile on a monthly, not a yearly basis) that the separated teacher would have received had his employment contract lasted until the end of the respective year of employment. (Art. 73, Labor Code, supra.) The legal question posited was whether the additional severance payment provided for under article 87 is to proceed if the termination applied by the employer is based on a ground other than that established in article 161 of the Labor Code (i.e., on the needs of the company) and the “needs of the company” ground is not proven.

The SCJ accepted the case for review based on the fact that the conclusion reached in two of its prior decisions was opposite to the finding of the appellate decision rendered in the case at hand. The SCJ quashed the appellate decision, which held that additional severance must be paid in cases of termination for grounds other than those specified in article 161 of the Labor Code. The SCJ's replacement decision affirms that the additional severance payment prescribed by article 87 of the Teachers' Statute is allowed only when any of the grounds established in article 161 of the Labor Code are invoked. As a result of the decision, teachers will not be additionally indemnified for severance resulting from different or overlapping grounds.

In light of the new decision, private employers may be encouraged to terminate teachers for reasons other than those established in article 161 of the Labor Code if they wish to avoid the additional severance payment due on the basis of articles 78 and 87 of the Teachers' Statute.