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M&A In Chile – Labour Matters To Consider

Author:Mr Cody Mcfarlane
Profession:Harris Gomez Group

It is essential to distinguish the difference between the purchase of a company and its employees, from the purchase of certain assets or a specific business unit. Simply, it is not the same to move around workers as it is to move around assets.

The Chilean law provides specific guidelines in the case of total or partial modifications to the companies ownership under the 'labour continuity principle' (article 4 of the Labour Code). The reason is that some would argue that continuity applies in cases where only the assets, debts or a specific business unit of a company are purchased. Such labour continuity means that the ownership changes do not affect the employee's rights and obligations arising from individual or collective contracts, which will remain in force with the new employer. It is in general a norm of protection for employees.


If a business is acquired in which labour continuity is not applicable, the transfer of employees from Seller to Buyer will require the employee's express consent. This will happen whenever the requirements of article 4 of the Labour Code are not met, and therefore there is no 'labour continuity'. For example, this may occur with the purchase of a small division of a company or in the case were the structuring did not give grounds to sustain that there was an actual modification that would justify the application of the 'labour continuity principle'. The Labour Office has been flexible in the interpretation of such article; however, it is recommendable to review this issue by specialised lawyers considering the specific structure of the acquisition.

In certain situations when the continuity of the employees may no occur automatically, the purchaser may not be willing to accept the benefits already accrued by the employees (pending vacations, years of antiquity, etc.). In this case, the purchaser could request the seller to terminate its employees before the sale is finalized and then rehire the employees with no pending rights or obligations. This is also a manner in which the new employer may avoid unwanted labour liabilities, and starting with a fresh page This may be also beneficial for employees as they would receive severance and pending accrued rights, before starting off with their new employer. In such case, the former employer or the purchaser should agree with the employer and the employee on the terms of such termination and/or transition of the employee to the new company, as...

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