Chile: What Happens When An Employer Uncovers Employee Fraud?

Last Updated: 14 July 2016
Article by Oscar Aitken

The first thing an employer should do when uncovering employee fraud is evaluate whether or not the company is obliged by law or by its internal policies to conduct an investigation. Prior to initiating any sort of investigation, the employer should consider, for example, the magnitude and relevance of the fraud, the seniority and position of the affected employee, etc.

If an investigation process is conducted (without infringing an employee's constitutional rights) and is successful, depending on the seriousness of the events and provided there is enough evidence of the employee's actions, the employer may dismiss the employee with cause based on "lack of probity of the employee in the performance of its duties" (Article 160 No.1 of the Labour Code).

In order to dismiss an employee for cause, the improper conduct constituting a fraud must be serious and duly proven. Furthermore, Labour Courts have added the following requirements to admit this ground of employment contract termination for cause: (i) the lack of probity must be attributable to the employee, current, related to the employment relationship, and linked to the employee's lack of honesty; and (ii) it must have caused a relevant damage to the company.

If an employer wants to terminate an employment contract for lack of probity, it has to deliver to the employee, personally or by certified mail, a dismissal letter informing the employee of the employment contract termination, the effective date of termination, the legal ground on which it is based, and a detailed description of all the facts that constitute the fraud.

It is very important to highlight the existence of conclusive and legitimate evidence against an employee in order to proceed with a termination for cause. This is due to the fact that, following a dismissal for cause, the employee will almost always sue the company for unlawful termination. The company has the burden of proof to demonstrate the fraud, and in so doing it may only allege and provide evidence in connection with the facts set out in the termination letter. Chilean Labour Courts are quite protective of employees and, thus, they impose a very high standard of proof for employers regarding lawsuits for unlawful termination.

Chilean law also expressly prohibits presenting evidence that has been obtained through unlawful or illegitimate means, especially if it was obtained in the course of violating the employee's fundamental rights (e.g., privacy and honour). An employer, therefore, should be prepared to present in court legitimate and conclusive evidence against an employee to demonstrate the existence of the conduct constituting the fraud and, as required by the Courts, the damage it caused to the company.

Finally, in addition to the employment termination and depending on the nature and magnitude of the fraud, the employer may (and in some cases it will be actually advisable to do so) take criminal or civil actions against the employee.

What process and rules should employers follow when conducting an investigation; what are the risks when they don't?

The internal investigation must be documented in writing; it also must be discrete, conducted in private, and guarantee that the affected employee is heard. The employer must also ensure the respect of employees' constitutional rights to honour, dignity, and privacy of communications and private life.

Once the investigation is completed, the company shall share the findings with the affected employee. If the evidence shows that fraud actually existed and the employee is effectively responsible for such conduct, the employer shall adopt the applicable measures and sanctions, which may include dismissal for cause without severance (except vacation payments). The employer should act promptly or the offense may be deemed forgiven by the Labor Courts.

If the employer conducts an investigation that goes beyond legal limitations, there are several possible adverse consequences for the company:

a) The means of proof that were obtained through an illegal investigation procedure could be declared entirely invalid by the Labour Court.

b) The company may be exposed to a lawsuit for infringement of fundamental rights either during the labour relationship or during the dismissal.

(i) Should the infringement of fundamental rights occur during the labour relationship, the company may be liable to pay damages, including pain and suffering, as well as administrative fines, and be barred from entering into contracts and to participate in tenders with the State of Chile for a two-year period.

(ii) Should the infringement of fundamental rights of the employee occur during the dismissal, the company may be liable to pay the employee an additional severance equal to 6-11 monthly remunerations (uncapped), as well as damages, including pain and suffering, and administrative fines. It will also be barred from entering into contracts and to participate in tenders with the State of Chile for a two-year period. Furthermore, if the Labour Court determines that the dismissal was discriminatory, it could order the employee reinstated to the company if the employee wishes so.

Is it necessary to have a "cause" in order to dismiss an employee? What are the consequences if a Labour Court finds a dismissal to be illegal or abusive?

Chilean Labour Law establishes that an employment contract may only be terminated based on the grounds and according to the formalities set forth in the Labour Code. Such grounds are limited and can be divided into two groups:

a) Grounds that do not give the employee the right to severance pay:

(i) Those where there is no fault of the employee (article 159 of the Labour Code):

  • Agreement of the parties;
  • Resignation of the employee;
  • Death of the employee;
  • Expiration of the term of a fixed-term employment contract;
  • Completion of the specific work or service for which the employee was specifically hired; and,
  • Act of God or force majeure.

(ii) Those where the employment contract is brought to an end due to serious fault of the employee (article 160 of the Labour Code):

  • Lack of probity in the performance of duties, sexual harassment, physical aggression or injury against the employer or other employees, verbal aggression against the employer, labor harassment, and serious immoral conduct affecting the business;
  • Carrying out certain acts in the same line of business as the employer where such acts have been expressly forbidden in the employment contract;
  • Absences from work with no justified cause during two consecutive days, two Mondays in a month, or a total of three days in a month, as well as unjustified absence (or without previous notice) if in charge of an activity, work, or machinery wherein abandonment or paralysation constitutes a serious disturbance to the development of the work;
  • Abandonment of work, which entails: (a) unreasonable or unjustified departure from the workplace during working hours without the employer's permission; and (b) failure to perform the work agreed in the contract without justified cause;
  • Acts, omissions, or fearless imprudence that affects the safety or functioning of the business or the safe performance of work by other employees or their health;
  • Intentional material damage caused to the facilities, machinery, tools, products, or goods of the employer; and,
  • Serious breach of obligations in the employment contract.

b) Grounds that give the employee the right to severance pay:

(i) Business necessities;

(ii) Dismissal at will of the employer; and,

(iii) Bankruptcy of the company.

In case of a dismissal for cause due to lack of probity in the performance of an employee's duties, the exposure of the company includes the following.

a) If the Court rules in favour of the employee, the employer will have to pay severance in lieu of prior notice and the severance per years of services, the last one with 80% surcharge. The surcharge could even be 100% if the dismissal is declared frivolous (carente de motivo plausible).

b) Additionally, it has become increasingly common that, together with suing for unlawful termination, employees are claiming violation of their fundamental rights. This claim is resolved through the Tutelage Procedure before Labour Courts. If this claim is presented jointly with a lawsuit for unlawful termination, the company is liable for the additional severance and subject to the sanctions outlined above.

Previously published by The Employment Law Alliance

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions