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No dismissal at will: cause, notice and severance

Last verified: 2026-10-26 · Status: Stable

Abroad, at will employment lets employers dismiss with little notice; in Chile an employer needs a legal cause, and dismissal without fault means the needs of the company with 30 days notice or a month's pay. After one year, severance is 30 days of pay per year of service up to 11 years, on a monthly base capped at 90 UF, and a court adds 30 to 100 percent if the cause fails. Dismissal does not end the contract if social security contributions are unpaid, and fixed term contracts are limited to one year, or two for managers and professionals.

USD figures use the Central Bank exchange rate of CLP 986.58 per US dollar published in the Diario Oficial for 23 October 2026 (CVE 2891564). UF amounts use the SII value of CLP 41,221.08 for 26 October 2026 and UTM amounts the SII value of CLP 72,151 for October 2026. Conversions are for orientation only. The 90 UF severance cap uses the UF of the last day of the previous month, CLP 41,057.20 for 30 September 2026.

Key facts

Severance per year of service	30 days of payCódigo del Trabajo, art. 163, as of 2026-10-26 · in force
Severance cap	11 years (330 days)Código del Trabajo, art. 163, as of 2026-10-26 · in force
Monthly pay cap for severance	90 UFCódigo del Trabajo, art. 172, as of 2026-10-26 · in force
Notice for dismissal for company needs	30 daysCódigo del Trabajo, art. 161 and art. 162, as of 2026-10-26 · in force
Deadline to sue for unjustified dismissal	60 business daysCódigo del Trabajo, art. 168, as of 2026-10-26 · in force
Maximum fixed term contract	1 year (2 years for managers and professionals) textCódigo del Trabajo, art. 159 Nº 4, as of 2026-10-26 · in force
Dismissal at will	No; legal cause required, notice only for managers and exclusive trust roles textCódigo del Trabajo, art. 159 to 161, as of 2026-10-26 · in force

The rule

1. Employment ends by mutual agreement, resignation with 30 days notice, death, expiry of the agreed term, completion of the work or force majeure. A fixed term contract cannot exceed one year, or two years for managers and holders of professional or technical degrees; continuing after expiry or a second renewal makes it indefinite, and more than two fixed term contracts covering 12 months or more within 15 months are presumed indefinite.
Cost to do it: No fee.
Example: A one year fixed term contract renewed twice becomes indefinite, with severance rights from then on. / No US dollar effect.DFL Nº 1 of 2002, Código del Trabajo, Art. 159, 2003-01-16 official text · verified 2026-10-26

2. Besides the faults listed in art. 160 (which give no severance), an employer may dismiss for the needs of the company, such as rationalisation or modernisation, falling productivity or changes in market or economic conditions. Managers and representatives with general powers of administration, domestic workers and roles of exclusive trust can also be dismissed by written notice. Notice is 30 days, copied to the Labour Inspectorate, or a payment of the last monthly pay instead. These causes cannot be used against workers on sick or work accident leave.
Cost to do it: One month's pay if notice is not given.
Example: An engineer earning CLP 3,000,000 a month dismissed without notice receives CLP 3,000,000 in lieu of notice. / About US$3,041.DFL Nº 1 of 2002, Código del Trabajo, Art. 161 and art. 162, 2003-01-16 official text · verified 2026-10-26

3. If the contract lasted one year or more and ends for company needs, the employer pays the agreed severance if higher, or else 30 days of the last monthly pay per year of service and fraction over six months, up to 330 days. The monthly base includes regular pay and employee contributions but excludes overtime and once a year items, and is capped at 90 UF of the last day of the month before payment. Severance is readjusted by CPI and earns the maximum interest for readjustable operations until paid.
Cost to do it: Up to 11 months of pay; monthly base capped at 90 UF, CLP 3,695,148 for payments in October 2026.
Example: With 5 years and 4 months of service and CLP 3,000,000 a month (below the CLP 3,695,148 cap): 5 months severance, CLP 15,000,000, plus CLP 3,000,000 in lieu of notice, CLP 18,000,000 in total. / About US$18,245. A director earning CLP 8,000,000 with 15 years gets 11 times CLP 3,695,148, CLP 40,646,628 (about US$41,200).DFL Nº 1 of 2002, Código del Trabajo, Art. 163, art. 172 and art. 173, 2003-01-16 official text · verified 2026-10-26

4. A worker who considers the dismissal unjustified may sue within 60 business days. The court orders notice pay and severance, increased by 30 percent if company needs were improperly invoked, 50 percent for an unjustified art. 159 cause or no cause, 80 percent for an improper art. 160 fault, and 100 percent where certain serious faults are found to lack any plausible basis.
Cost to do it: 30 to 100 percent of severance on top.
Example: In the example above, a 30 percent surcharge raises severance from CLP 15,000,000 to CLP 19,500,000. / About US$19,765 of severance.DFL Nº 1 of 2002, Código del Trabajo, Art. 168, 2003-01-16 official text · verified 2026-10-26

5. Before dismissing, the employer must inform the worker in writing of the status of social security contributions up to the last day of the previous month, with proof. If contributions are not fully paid, the dismissal does not end the contract; the employer can validate it by paying, but owes pay from the dismissal until it notifies the payment. The settlement (finiquito) must be in writing, ratified before a labour inspector or other official or signed on the Labour Directorate website, and paid within 10 business days.
Cost to do it: Ratification on the Labour Directorate website is free; notaries charge market fees.
Example: An employer that dismisses with two months of unpaid contributions keeps paying salary of CLP 3,000,000 a month until it pays the arrears and notifies the worker. / About US$3,041 a month of extra cost.DFL Nº 1 of 2002, Código del Trabajo, Art. 162, fifth to seventh paragraphs, and art. 177, 2003-01-16 official text · verified 2026-10-26

Monthly pay (CLP)	Years of service	Notice pay (CLP)	Severance (CLP)	Total (US$)
1,000,000	3	1,000,000	3,000,000	4,054
3,000,000	5	3,000,000	15,000,000	18,245
8,000,000	15	3,695,148	40,646,628	44,945

Cost of a company needs dismissal without notice (CLP at 986.58 per US dollar; 90 UF cap CLP 3,695,148).

Worked example

A US parent restructures its Chilean subsidiary and dismisses 10 staff averaging CLP 2,000,000 a month and 4 years of service, without notice: 10 times (CLP 2,000,000 plus 4 times CLP 2,000,000) = CLP 100,000,000, about US$101,360.

Step by step

Check contributions are fully paid and attach proof.
Write the termination letter citing art. 161 and the facts, with the amount payable.
Send it 30 days ahead, or pay one month instead, copying the Labour Inspectorate.
Prepare the finiquito within 10 business days, ideally on the Labour Directorate website.
Budget for a 30 percent surcharge if the cause is weak.

Common traps

Notice only termination is limited to managers with general powers and exclusive trust roles.
Unpaid contributions keep the contract alive and salary running.
The 90 UF cap in art. 172 applies to all indemnities of the termination title, so high earners receive far less than a month of pay per year.

Sources

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