During this summer, the labor environment has been unusually active, both at the jurisprudential and legislative levels, highlighting a recent decision of the Supreme Court on the application of the dismissal cause "business needs" (necesidades de la empresa in Spanish) and the progress in the processing of the bill that seeks to reduce the working week to 40 hours.

Company needs

At the jurisprudential level, the main news comes from the Supreme Court, which once again ruled (hearing an Appeal for Unification of Jurisprudence), on the admissibility and requirements of the grounds for dismissal contained in the first paragraph of Article 161 of the Labor Code: the "company needs".

We must remember that, according to the referred norm, the employer may terminate the employment contract invoking as a cause "company needs"; "such as those derived from the rationalization or modernization of the same, drops in productivity, changes in market or economic conditions, which make necessary the separation of one or more workers".

In November 2021, the Supreme Court ruled requiring objective economic circumstances as a condition to admit the application of this cause, stating: "the legal cause for termination of employment contract of 'company establishment or service needs', being an objective cause, can only be invoked by the employer on the basis of external economic factors beyond its control, and cannot emanate from a restructuring whose origin is the mere will of the company [...]". It then concludes that "[...] the employer can only invoke the cause of 'company needs alluding to objective aspects, of a technical or economic nature of the establishment, which is not related to its conduct and exceeds the mere will of the employer, who must prove the factual assumptions that make up the reasons that forced it to adopt the processes of modernization or rationalization in the operation of the company, or economic events such as drops in productivity or changes in market conditions, which the aforementioned provision points out as an example". (Supreme Court, Rol No. 76.715-2020).

On January 21, 2023, the Supreme Court reaffirmed and deepened this criterion, in a new decision of Unification of Jurisprudence in which it ruled on the conditions for the "company needs" as a cause for dismissal. In this case, the company applied this ground based on the implementation of a reorganization and rationalization of the functions necessary for the development of the work: the position occupied by the dismissed worker would no longer be necessary.

The Supreme Court, in resolving this appeal, concluded that "[...] the cause for dismissal regulated in the first paragraph of Article 161 of the Labor Code requires the concurrence of technical or economic aspects, and being objective, it cannot be based on the simple will of the employer, but rather on serious situations that show that it was necessary to adopt modernization or rationalization processes in the operation of the company, in adverse financial circumstances, such as low productivity or changes in market conditions".

The ruling adds that, "[...] the cause under analysis must constitute an objective situation that affects the company, establishment or service, therefore, it cannot be invoked at the mere discretion of the employer, in which case it would operate as a free dismissal or eviction; the need must be serious, so it must be a situation of such magnitude that it endangers the subsistence of the company and not merely a reduction in its profits". (Supreme Court, Rol N°87.286-2021).

In short, according to the criteria of the Court, it is not enough that it is internally determined as necessary to implement a restructuring or reorganization of the company to justify a dismissal (despite the fact that the first paragraph of Article 161 itself so provides). This is because it requires the company to be in a critical situation, in which the dismissal of the employee is indispensable to avoid committing the very existence of the company, not only its results, projections or efficiency.

In our opinion, the interpretation of the Supreme Court on the application of the "needs of the company" cause will generate that, in practice, no legitimate decision of the company that has effects on the labor continuity of any of its workers - such as a reorganization or a restructuring motivated, for example, by the implementation of new technologies - will be sufficient reason to apply the cause, since it has added a new requirement not contemplated in Article 161 of the Labor Code, that is, that the company is in a critical economic situation.

In this sense, a dismissal derived from a legitimate decision of a company to rationalize or modernize services, or due to a drop in productivity or changes in market or economic conditions, could be considered an insufficient reason to apply this ground and, therefore, could be considered an unjustified, undue or unfair dismissal.

Although in our country the rulings of the Supreme Court do not constitute a precedent that obliges judges to act in accordance with the criteria contained in its rulings, it clearly constitutes an element that may be considered by judges when deciding on the admissibility of the "company needs" ground.

Thus, this ruling obliges companies to rigorously plan the termination processes of their employees, evaluating the specific conditions of the company and carefully preparing the documentation required by law for its materialization.

Bill to reduce the working week to 40 hours.

Another of the novelties, as we recently reported, is related to the bill that seeks to reduce the length of the working week from 45 to 40 hours per week - after several months without substantive progress - achieved an important step in its legislative procedure. This was approved by the Senate Labor Committee after the presentation of indications aimed at giving greater flexibility to the distribution of working hours.

This legal alert was prepared by the Bofill Mir Abogados labor team for informational purposes and should not be considered legal advice.